It was controversial when it took effect, and it remained controversial until public officials decided enough was enough – roughly a little more than a year later. But House Bill 4050 (renamed Public Act 94-280) is now null and void, which should be a relief to real estate investors and prospective homebuyers looking for bargain property in south Chicago.

Responding to the public outcry of legislative redlining, equal protection violations, and racial discrimination against minority residents living in certain Chicagoland areas, Illinois Gov. Rod Blagojevich suspended the law on January 19, 2007.

A statement released by Dean Martinez, Secretary, Department of Financial and Professional Regulation, explained the decision to suspend the law by stating, “the Secretary received and reviewed information that suggests that the prior designation may be detrimental to the Pilot Program’s purpose, namely, to curb predatory lending practices in areas with high rates of foreclosure on residential home mortgages.”

For legitimate investors looking to help homeowners in distress, the law’s suspension is welcome news. Although its intent was to reduce foreclosures in certain blighted areas in Chicago, the law stirred up a public outcry from the get-go due to the pilot program zeroing in on 10 zip codes chosen for their high foreclosure rates,  but heavily populated by minority communities — especially African Americans and Hispanics.

The law required prospective homeowners to undergo financial counseling before obtaining a mortgage, as well as supplying personal information to their lender that would be entered into a state government database. Plus, the law applied only to state-chartered lenders not federally-chartered lenders.

With HB 4050 effectively dead, homeowners — some of whom have taken out second and even third mortgages on their properties — need help to get out of a potentially disastrous financial situation. As we move forward in 2007, with the local market in the doldrums, this would be one of those areas around the nation that it would be worthwhile for investors to keep up to date on.

Storm clouds are gathering over the nation’s battered housing market. Depending on whom you ask, the forecast calls for either thunderstorms or gale force hurricane winds. Fueling the latest concerns is a deluge of discouraging data in the housing sector.

Home prices and sales plunge
Sales of existing single-family homes declined in 40 states and in half of the nation’s biggest metropolitan areas in the last three months of 2006, according to the National Association of Realtors. The biggest declines were in Florida-Sarasota-Bradenton (down 18 percent), Palm Bay-Melbourne (17 percent) and Cape Coral-Fort Myers (12 percent).

At the same time, Nevada sales plunged 36 percent, while Florida posted a decline of 31 percent. Sales fell by more than 20 percent in Arizona, Virginia, California, Maryland and the District of Columbia.

2.1 million vacant homes await buyers
In addition to weaker sales and declining prices, a record number of homes are sitting vacant awaiting buyers. An estimated 2.1 million empty houses were listed for sale during October, November and December, according to the Census Bureau. That suggests that prices may have to fall further for sales to pick up and the overall housing market to recover.

Housing starts tumble sharply
New residential construction fell sharply in January, plunging 14.3 percent to the lowest level in nearly a decade as the housing industry continued to struggle with a severe slowdown. The decline in the construction of new homes and apartments pushed activity to the slowest pace since 1997, according to the Commerce Department.

Regionally, housing construction tumbled 29 percent in the West, 15 percent in the Midwest and 12 percent in the South. Construction starts were up only in the Northeast, which saw a gain of 9 percent. For real estate investors and home buyers, weakness in January construction means that builders will slash prices and offer incentives to motivate buyers into writing offers.

Foreclosures surge upward
The biggest news in residential real estate, however, seems to be foreclosures. The 130,511 new foreclosure filings last month were up 25 percent from 2006, according to RealtyTrac. The time has never been better for aspiring real estate investors, home buyers and real estate agents to successfully purchase foreclosure properties.

Today, the real estate industry is saturated with overpriced, over-financed properties. Add sagging sales, plunging prices, a glut of vacant homes awaiting fickle buyers and havoc in the housing sector begins.

But in chaos there is opportunity — and the real estate industry is no exception. In current conditions, people with the skill, capital and vision can make great profits. For RealtyTrac members, the existence of these opportunities is no secret. They know that a growing number of bargain foreclosures are now available.

For anyone who has lived through a natural disaster, the recent tornadoes in Central Florida and the horrific aftermath left behind — approximately 1,500 structures destroyed and 20 people killed — brings back memories of more than just the great need for disaster relief from the federal government (FEMA). It also brings back bad memories of dealing with insurance companies and very slow claims service.

It doesn’t matter if you’re living in Florida or California — coastal property is expensive and so are the insurance premiums that go with them. Back in 1994 something called “The Northridge Earthquake” (misnamed as it was) shook Los Angeles at 4:31 a.m. at a reading of over 7 on the Richter scale. Many insurance companies that WERE writing homeowner’s insurance policies pulled out of California altogether after that one.

Then a few years ago the wildfires in San Diego had the same effect — skittish insurance companies turning and running after paying off on what were expensive policy claims.

According to one recent report, insurance companies are getting skittish again — this time in Central Florida and other parts of the eastern seaboard. This does not bode well for worried homeowners who are sitting on the cusp of foreclosure. Florida had 124,721 foreclosures last year — a 2 percent increase from 2005, and a foreclosure rate of one new filing for every 59 households. The state led the country in foreclosures one month last year, and was in the top three states for total foreclosures every month of 2006, according to RealtyTrac’s U.S. Foreclosure Market Report.

Add to that the fact that many of those homeowners who bought during the past two years financed their home purchase with one of those high-risk adjustable rate mortgages that is due to reset in 2007 or 2008 — and there is something for them to worry about.

In 2002 the Florida Legislature created Citizens Property Insurance Corp. to write policies in what are considered high-risk areas of the state where homeowners couldn’t find coverage on the open market from private insurance companies. Yet some of the victims from last week’s tornadoes were uninsured nonetheless — either because premiums from the private insurance companies were too high and unaffordable, or because their insurance company cancelled the policy outright. Citizens is expecting up to 500 claims to be filed due to last week’s storms, paying out an estimated $5 million to $6 million.

What does this have to do with foreclosures? Everything!

There is an underlying problem here. Most lenders will not fund a loan for a house that is uninsured. So even if distressed homeowners wanted to refinance their way out of foreclosure they couldn’t if they don’t carry insurance on the home. If they wanted to sell the property outright, it’s going to be a problem as well because no one wants to buy a house that can’t be insured. What’s more, lenders consider failure to have homeowner’s insurance securing their loan as a default on the mortgage.

The end result of all this may turn out to be a greater number of foreclosures in the Sunshine State this year, but it is way too early to tell at this point. We’ll just have to sit tight and wait and see.

As borrowers falling behind on their mortgage payments increase in number, they are getting help form an unlikely source — the mortgage industry.

Banks are increasingly testing new strategies to help curb mortgage delinquencies.

To prevent potential problems, National City Corp. — headquartered in Cleveland, Ohio — is working with churches, social workers and the United Way to help troubled borrowers avoid foreclosure. Bank of America Corp. is allowing some borrowers with adjustable rate mortgages (ARMs) to refinance into a different loan at no cost, and CitiMortgage is contacting delinquent borrowers within days after a missed payment.

But one Midwestern lender has a novel idea.

NovaStar Financial Inc., a Kansas City-based subprime mortgage lender, helps its customers find jobs. NovaStar’s Launch-Point program has helped more than 1,036 NovaStar borrowers find work without charging them a penny, according to the Columbus Dispatch. Launch-Point helps job-hunting mortgage customers prepare resumes, practice for job interviews, find job openings and evaluate how the real job interviews went.

In all, NovaStar has spent $3 million helping customers find jobs. The $3 million investment has prevented $15 million in likely foreclosure losses. Each foreclosure costs about a third of the value of the loan.

NovaStar also is working on a test program with Option One Mortgage, owned by H&R Block Inc., to see whether Launch-Point could offer its services to other mortgage companies for a fee.

Please feel free to comment on this article, or write an e-mail to us at: editor@foreclosurepulse.com.

The Personal Income and Outlays report pegged the country's personal savings rate at negative 1 percent in 2006, lower than the negative 0.4 percent in 2005. Not since the Great Depression has the personal savings rate registered in negative territory for two consecutive years, according to an Associated Press article on the report.

While this negative savings rate may be helping to sustain the country’s growing economy in the short term by infusing the economy with cash, it could also be draining the rainy day funds of many homeowners, leaving them more susceptible to foreclosure.

The good news is that the negative savings rate of the last two years appears to be a byproduct of voracious consumer spending not rampant unemployment like that which occurred during the Great Depression. That means homeowners who spend more than they make have some options to lower their risk of foreclosure. They can spend less in other areas of their budget, increase their income with a new job or another job, refinance at a lower rate, or refinance at a fixed rate if they have an adjustable rate mortgage scheduled to reset in the near future.

More tips on preventing foreclosure.