Bank Foreclosures Information

Bank foreclosed house for sale inventories are still rising in multicultural areas in Chicago and these foreclosed properties are staying on the market longer, according to a study by the nonprofit Woodstock Institute.

The study showed that 33 percent of all single family homes foreclosed in the past 3 years remained unsold as of December last year, leaving a lot of vacant properties in multicultural neighborhoods.

Whenever some of the foreclosed properties are sold, they are sold 30 percent below their home loan amounts, indicating that lenders have been accepting bargain prices to cut their loan losses.

The researchers also found that single-family foreclosures have been occurring mostly in Chicago’s African-American communities.

During the first quarter of this year, a total of 2,099 single-family houses in Chicago were foreclosed by banks and nearly 50 percent of these foreclosures occurred in neighborhoods where more than 80 percent of all residents are African Americans. In these areas, most foreclosure properties have also remained unsold for over 18 months.

Woodstock vice president Geoff Smith said he is concerned about the rising inventory of bank foreclosed house for sale not being purchased and the soaring number of abandoned foreclosures.

One multicultural working class neighborhood that illustrates the level of foreclosure problem in culturally diverse Chicago neighborhoods is Chicago Lawn. In one block at South Rockwell, half of all single-family homes and multifamily properties are boarded up while the rest are bank-foreclosed and vacant.

Based on the Woodstock study, the number of days to sell a foreclosure property in Chicago Lawn in 2007 was 274 days, a significant rise from 180 in 2005.

Almost all buyers of the properties were investors who planned to keep the properties vacant and just recoup their investments when property values go up again. Other properties were held by banks which have not decided to sell them.

Analysts said that it would take two years for Chicago Lawn to sell its current inventory of vacant homes, assuming that the number of new foreclosures is negligible.

However, based on foreclosure filings in Chicago from January 2008 to June this year, current foreclosure inventory will soar. Over 1,800 housing units in the zip code that covers Chicago Lawn went into foreclosure over the 18-month period ended June.

Recently, Bank of America agreed to work with community nonprofits to reduce the number of bank foreclosed house for sale in Chicago Lawn. The bank apparently realized it can cut its loan losses through aggressive loan modifications.

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The number of bank foreclosure properties priced more than the conforming loan limit of $729,750 has been rising, according to a recent survey conducted by the Mortgage Bankers Association and studies by several property research firms.

Based on data from the researchers, default rates on prime jumbo mortgages have been increasing, particularly home loans provided by lenders from 2006 to 2008.

Robert Toll, chief executive of luxury house builder Toll Brothers, admitted that the rise in prime jumbo loan foreclosures is a threatening development for the home building industry.

Additionally, the MBA data showed that out of three recent foreclosures, one was a prime loan, indicating a significant rise from the one-in-five ratio last year.

The percentage of prime mortgages in foreclosure increased by 3 percent, an increase of 51 points from the number in the first quarter and a rise of 158 points from the number during the same period last year. Default rates on prime mortgages have also been rising.

In the past, foreclosure actions are largely filed for homes valued below $100,000 and houses priced between $100,000 and $300,000. In some states like California, the average sales price for bank foreclosure properties in the past was $192,031. But now foreclosures have been happening in high-end communities, where most mortgages are far above $729,750.

One example is the foreclosure of a luxury residential project in Vero Beach, Florida by Regions Bank, with the project developer owing the bank a total of $22 million.

Another is a luxury residential project in Dallas, which was planned to feature a shopping mall. It has been foreclosed by Wachovia Bank, now a unit of Wells Fargo.

Analysts said that the number of high-end foreclosure homes would have been higher if luxury-home owners do not sell their distressed homes through short sales.

To avoid the humiliation of foreclosure, many owners of high-end homes exert all efforts to sell their properties before they are foreclosed. With their business and social networks, they are able to negotiate with their lenders to accept short-sale proceeds as payments for their jumbo loans.

Banks meanwhile prefer short sales when high-end homes are involved because they lose much more in high-end foreclosures compared to what they lose in the foreclosure of lower end homes.

Across the country, bank foreclosure properties continue to impact not only the lives of defaulting homeowners, buyers and investors, but also the financial conditions of banks heavily exposed to the commercial and residential sector.

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Bank foreclosure homes and foreclosed commercial properties clobbered 5 more banks, putting the total number of U.S. banks that collapsed this year as of the first week of September to 89 banks.

The Federal Deposit Insurance Corporation shuttered First Bank of Kansas City in Missouri, which had $31 million in deposits and assets, and approved the takeover of its deposits by Great American Bank, which is based in De Soto, Kansas.

The FDIC also closed two Illinois banks, namely InBank which is based in Oak Forest and Platinum Community Bank which is based in Rolling Meadows.

A major portion of the $199 million deposits in InBank will be taken over by MB Financial Bank while the brokered deposits will be supervised by FDIC. Three branches of InBank will open as MB Financial Bank. InBank also had $212 million in total assets.

Platinum Bank had $305 million in total deposits and $346 million in total assets. Since the FDIC was not able to find a buyer for Platinum, insured deposits will be paid by FDIC at Platinum Bank. Payments for social security and veteran bills enrolled at Platinum Bank will be accepted at the Palatine branch of MB Financial Bank. Just like other banks, Platinum was heavily exposed to the real estate sector, which is currently loaded with bank foreclosure homes and foreclosed commercial properties.

The FDIC also closed First State Bank in Flagstaff, Arizona, which had $105 million in total assets and $95 million in total deposits. The deposits will be taken over by Tustin, California-based Sunwest Bank.

Vantus Bank, which is based in Sioux City, Iowa, had $368 million in total deposits and $458 million in total assets when it closed. Its deposits will be taken over by Springfield, Missouri-based Great Southern Bank.

Because the FDIC insures deposits up to $250,000, the FDIC deposit insurance fund is expected to lose millions to cover the deposits: about $6 million for First Bank of Kansas, about $66 million for InBank, about $168 million for Vantus Bank, about $114 million for Platinum Bank and about $47 million for First State Bank.

Because of the continued rise in bank foreclosure homes and foreclosed commercial properties, more banks are expected to collapse in the next months and years. According to FDIC, the number of problem banks has increased to 416 on June 30, compared to 305 last March 31. The number is also the highest level reached since the collapse of savings and loan institutions in 1994.

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The Riverside Hotel in downtown Detroit has been added to lists of Michigan bank foreclosures after Chicago-based lender Mutual Bank foreclosed on the hotel in July.

The hotel, formerly called Pontchartrain, was acquired by Florida-based investment partnership Shubh Hotels Detroit LLC in 2005. The partnership promised to renovate the ailing Pontchartrain and make it into a first-class hotel, but it failed for various reasons.

Hospitality industry analysts said the temporary closure of the Riverside Hotel, which has about 400 rooms, may improve the occupancy rates of other hotels, but on the whole, the foreclosure is not good for the city and the hospitality industry, according to Michael O’Callaghan, a top executive of the Detroit Metro Convention and Visitors Bureau.

Nonetheless, downtown Detroit still has the ability to host large conventions because of the addition of 2,000 new rooms at three casino resort hotels and at the renovated Doubletree Fort Shelby and Westin Book Cadillac hotels.

Before the foreclosure, Shubh Hotels had not paid the salaries of its employees for two months. In late June, the participants and guests of the National Baptists Convention who stayed in the hotel left early because of lack of air conditioning and problems with services.

The problems of the hotel worsened when hotel lender Mutual Bank also suffered the same fate as the hotel. At the end of July, the bank was closed by the Illinois Department of Financial and Professional Regulation Banking Division due to insolvency. The appointed receiver Federal Deposit Insurance Corporation in turn approved the application of Garland, Texas-based United Central Bank to take over Mutual Bank. The Texas bank acquired Mutual Bank’s assets, deposits and loans, including loans provided to the Riverside Hotel.

Lawyer David Findling was appointed receiver for the hotel by the Wayne County Circuit Court. Findling said the hotel needs renovations before it can operate again. He said he hopes United Central Bank puts more funds into the hotel so it can reopen and operate fully. He argued that a fully functioning hotel would get a better sales price than an unoccupied and closed hotel.

Findling also added that a vacant hotel building is not good for the image of the city which is trying its best to recover from the adverse effects of closures in the automobile industry.

According to Chuck Skelton, head of the hotel advisory firm Hospitality Advisors, the 1965-built Riverside Hotel needs around $100 million to modernize it even after a partial upgrade worth $35 million some years ago.

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