The city of Chicago lost more than $3.1 billion in wealth, or about $2,900 per household, in 2012 as a result of the foreclosure crisis, according to a new report from the Alliance for a Just Society.
And more than $192 billion in homeowner wealth was lost nationally last year, the new analysis shows.
Communities of color in Chicago saw more foreclosures and lost wealth per household compared to other communities.
In 2012, the average Chicago household in zip codes with the highest concentration of people of color lost $3,700 in wealth, the “Wasted Wealth” (PDF) report found.
In comparison, the average wealth lost in segregated white communities was about $1,300 per household.
“Seeing this loss of wealth per household is profound," said the Rev. Marilyn Pagán-Banks, president of IIRON, which also worked on the release of the report. "People of color in Chicago, whose majority equity holdings remain in real estate, have been particularly affected by the crisis.”
Pagán-Banks stressed that the housing crisis is not over.
"Without intervention, we’ll continue to deteriorate,” she said.
Overall, there were about 22 foreclosures per 1,000 households in Chicago last year.
But in communities with a majority of people of color, there were 28 foreclosures per 1,000 households, according to the analysis.
“This makes sense given the evidence that subprime loans were targeted at communities of color before the 2008 financial crisis,” Pagán-Banks said.
Communities with an above average population of people of color saw 24 foreclosures per 1,000 households. And these communities had $3,100 in lost wealth per household.
Segregated white communities, however, saw just 10 foreclosures per 1,000 households last year.
On top of the homes already in foreclosure, there are 126,000 homes in Chicago that are underwater. In other words, the homes are worth less than what the owners currently owe on their mortgages.
“With 126,000 homes still underwater in Chicago, the threat of another great erosion of wealth is looming,” Pagán-Banks warned.
The report estimated that 13 percent of those underwater homes will go into foreclosure. That means Chicago stands to lose an additional $2.1 billion in wealth, or $1,900 per household.
The vast majority of Americans now facing foreclosure became homeowners in good faith, said David Hatch, executive director of The People’s Lobby, which also helped release the report.
He said homeowners believed they were given a fair deal with the intention to fully repay their loan.
“It turned out many of the deals were unfair and even predatory and that regulators were asleep at the wheel,” Hatch said.
Taxpayers, including families who are underwater or have been foreclosed upon, bailed out the banks that created the housing crisis with their “unscrupulous lending practices,” he added.
And homeowners have gotten almost no relief, Hatch noted.
The report suggested that principal reduction could be a key solution to the housing crisis.
“Homeowners in underwater mortgages across Chicago would save an average of $7,700 a year in mortgage payments if the mortgages were renegotiated to reflect their true market value,” Hatch said.
That breaks down to be a saving of a little more than $640 per month for a household, he added.
“Putting this money to work in local economies could produce an economic boost of $913 million in Chicago and almost $6 billion across Illinois,” Hatch said.
This boost in local activity would create more than 13,000 jobs in Chicago and even more across the state, he noted.
IIRON and The People’s Lobby have worked with impacted homeowners to push Congress and the Obama administration to enact principal reduction.
Hatch noted that President Barack Obama's recent nomination of Mel Watt, a Democratic congressman from North Carolina, as the new head of the Federal Housing Finance Agency is a step in the right direction. The Federal Housing Finance Agency oversees Fannie Mae and Freddie Mac. And Watt is a supporter of principal reduction.
"It's a signal that Fannie Mae and Freddie Mac will finally be allowed to provide needed and fair relief to millions of homeowners all over the country," he said.
It's crucial that U.S. Sens. Dick Durbin and Mark Kirk stand with Chicago and other homeowners by voting to confirm Watt, he added.
The "Wasted Wealth" analysis looked at foreclosures by zip code. Researchers factored in the total lost value from each foreclosed home as well as the value lost from neighboring homes.
“It’s pretty well established that one foreclosure doesn’t just affect that individual home, but the entire neighborhood,” said Ben Henry with the Alliance for a Just Society.
The cost for municipalities to maintain the foreclosed homes as well as the impact to local taxes were also factored into the wealth-loss figure, said Henry, one of the report's authors.
“Every step of the way we took very conservative estimates, so if anything, our number understates the true impact of this crisis,” Henry explained.
But even with those conservative estimates, “We’re seeing these just enormous impacts,” he said.