Facing the threat of foreclosure on her home, Carla Diamantes was shaken and frustrated.
Her South Shore house is where she grew up, and has been in her family for six decades, she said. But after challenges with her mortgage servicer and upon exiting a COVID-19 program that allowed her to defer payments, she owes thousands of dollars.
The servicer raised the specter of foreclosure.
“It really shakes your core,” Diamantes said. “Oh, I could be homeless. Oh, I could lose my legacy.”
About 5% of Illinois home loan holders were behind on payments or facing foreclosure in July, according to the most recent information available from mortgage data and analytics firm Black Knight. Diamantes was hopeful she would resolve her mortgage balance and the issues with her servicer without losing her home, but as many as 157,741 other Illinois homeowners and renters who were behind payments reported in an end-of-August Census Bureau survey that eviction or foreclosure was likely.
Homeowners have had some protections during the pandemic, including forbearance programs that allow mortgage payments to be deferred and federal rules for mortgage servicers intended to prevent foreclosures. A widespread wave of foreclosures when the rules will expire in January and as forbearance programs end is unlikely, experts said.
But the Chicago area could have less of a buffer against foreclosures than other parts of the country, and housing advocates fear some communities are particularly vulnerable. Also at risk are the city’s iconic two-, three- and four-flats, which historically have been an accessible, income-producing homeownership opportunity and a key source of lower-cost, family-sized housing for renters.
“Homeownership is rising across the city of Chicago; more people are purchasing now,” said Danielle Matthews, associate director of homeownership services for Neighborhood Housing Services of Chicago. “However we do know homeowners will be foreclosing at a higher rate due to COVID hardships in these particular communities on the South and West sides.”
The hot real estate market provides some protection against foreclosure for homeowners who can sell, said Peter Boomer, executive vice president at PNC Bank. Home prices in the Midwest haven’t skyrocketed as high as they have elsewhere, but there has been enough steady growth to make a wave of foreclosures unlikely, he said.
But to researchers at the Urban Institute, Chicago’s slower price and home equity growth might put the city at risk for more foreclosures. The number of home borrowers who are significantly behind on their mortgages has dropped since summer 2020, but Chicago is recovering more slowly than other major cities, said research analyst John Walsh.
“The concern really is the equity not being where it is in other states, not having recovered as much housing equity since the (2008) recession,” he said.
An uptick in foreclosures could be felt most in neighborhoods on the South and West sides of Chicago, said Matthews, at Neighborhood Housing Services. That’s where families have taken a harder financial hit because of the pandemic, she said.
Two- to four-flats, where tenants have faced challenges paying rent, are also at risk. Owners often live in the buildings, and foreclosure could mean the loss of both owner and tenant homes and of an affordable rental unit, said Diane Limas, a volunteer and board member for Communities United.
“We’re concerned for any family going through foreclosure, but our big concern is for the two- to four-flat, ma and pa homeowner that only gets money from one apartment to pay their mortgage, to pay their property taxes, to do repairs on the building,” she said. “And now, all of a sudden, there’s no money coming in.”
State and local rental assistance programs can help, Limas said. Communities United is part of the Chicago Flats Initiative, which aims to preserve the buildings and is knocking on doors to provide information about rental and homeowner assistance.
But not all tenants might receive rental assistance, and two- to four-flats owners looking to sell during COVID-19 challenges could open the door to investors, said Tanya Woods, executive director of the legal aid organization Westside Justice Center. That has her worried about local wealth leaving communities, and the potential for future gentrification.
A crisis could also be lurking down the line for other homeowners, she said. The way borrowers make up payments deferred during forbearance varies by loan, but some mortgages could skyrocket when payments come due in coming years or at the end of forbearance programs, leading to foreclosures down the line.
That has been one challenge for Diamantes.
Diamantes entered a COVID-19 forbearance program at the end of June 2020. She had missed one payment more than six months earlier when she never received notice that a new servicer had taken over her mortgage. Her later attempts to make payments were rejected and, after months of challenges with the new servicer, she was several months behind on her mortgage, she and her attorney, Seth McCormick, said.
The new company, Shellpoint, told Diamantes her home was referred to a foreclosure attorney in March 2020, according to a letter provided by McCormick, but McCormick said there seemed to be no record that the threatened foreclosure had been filed.
She entered the forbearance program to try to catch up, and said she continued to try to make some payments. When the servicer ended her forbearance 10 months later, the company told her she didn’t qualify for repayment plans available to some borrowers, McCormick said. The company had added additional charges, including for taxes and insurance, which McCormick challenged.
In May, Diamantes was told she owed $11,321. To Diamantes and McCormick, it seemed the option left to her by the servicer was to make the full payment at once.
As servicers navigate a variety of forbearance rules governing different types of loans, McCormick expects to see other, similar situations arise.
“This is a prime example of somebody who used the system to try to catch up on stuff and she tried to fix a problem they had and the benefit wasn’t there because the servicer did something wrong,” McCormick said.
Shellpoint declined to comment on an individual situation, citing privacy laws. The company referred questions about its mortgage and pandemic forbearance processes to a COVID-19 page on its website.
Diamantes and McCormick are still working on options for her overdue payments. Diamantes worries about losing her family home, but thinks she’ll find a solution before losing the property, she said.
She thinks of passing the house on to her children, though she said it would need significant updating. Or maybe she will sell it.
In the meantime, she has watched the amount she owes grow.
“It’s worrisome,” she said. “It’s very worrisome.”
