Chicago homeowners apparently drowning in debt

November 8, 2011 2:51:08 PM PST
Chicago homeowners are apparently drowning in debt. Almost 50-percent are underwater on their mortgages, owing more on their homes than they're worth.

According to the statistics by real estate website Zillow, Chicago homeowners are in better shape than those in Phoenix, Arizona or Las Vegas, Nevada. And while there may be a few markets that show improvement in the study, many homeowners in Chicago and across the nation are stuck.

About 46-percent of Chicago homeowners have negative equity, according to the Zillow, which means they owe more on their mortgages than that home's current value.

"Your options are reduced. It's more difficult to refinance if you don't have any equity in your home. It's more difficult to sell if you don't have equity in your home, said Geoff Smith, DePaul Institute for Housing Studies.

Chicago is higher than New York and L.A., at 18- and 21-percent, respectively. The national average was 29-percent, according to Zillow, in the third quarter of the year.

"A big portion of potential buyers are off the markets because they are the owners of homes, they can't sell their homes. So I think this underwater market is a big chunk of the markets and is big impediment to recovery in the housing market," Smith said.

Pete Schultz bought his Jefferson Park bungalow 20 years ago. When he went to refinance, he found out he was underwater.

"I was extremely surprised," Schultz said. "When they came out and did the estimate, I thought it can't be right."

Schultz said refinancing would raise his monthly payments. He hopes the housing market improves and banks ease requirements for homeowners like him.

"I wish the bank would loosen up so I can refinance. I only make more money for them. I'm still a customer," Schultz said. "It seems like the government is doing a lot for them and they're not doing anything for anybody else."

The president recently announced plans the loosen guidelines to allow more underwater homeowners to refinance under the government's Home Affordable Refinance Program (HARP). But those modifications likely wouldn't happen until next year. There is concern about the increasing number of underwater mortgages may lead to more foreclosures for homeowners who can't hang on at their current rates.

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