The number of pre foreclosed homes in the Chicago metro area soared by 10.2 percent to over 70,000 in 2009, according to data from the Woodstock Institute.

The institute said that more homeowners in the metro area defaulted on their home loans during the fourth quarter last year than in any other three-month period over the past four years.

In the last quarter, more than 24,000 homeowners were given notices of mortgage default, warning them about foreclosure if they do not make their accounts current. The figures also showed that defaults have been increasing in affluent neighborhoods.

According to Geoff Smith, senior vice president of Woodstock, foreclosures will continue this year in Chicago and in most other cities across the country because of continuing job losses and inadequacy of job creation programs.

Smith also said that the federal loan mitigation program would not be able to save homes as even reduced monthly payments would not be paid by unemployed borrowers. He added that there are also other unresolved issues such as underwater mortgages and adjustable-rate mortgages. Any recovery in the market, he said, will be wiped out as soon as the federal tax credit expires.

Woodstock data showed that pre foreclosed homes increased by the biggest rates in Lincoln Park, Near North Side and Near South Side, communities which had fewer defaults during the first year of the crisis. Previously hardest-hit communities like Hyde Park, Austin, Englewood and Auburn Gresham posted fewer defaults this year compared to 2009.

According to data from the Mortgage Bankers Association, as of October last year, nearly 10.5 percent of mortgage loans in Illinois were in default by at least 30 days but were not yet foreclosed, and another ten percent were delinquent by at least 3 months and already in foreclosure.

To step up local government efforts to fight and mitigate foreclosures, the Chicago Department of Community Development will increase its mortgage rescue events this year. The city will also continue to carry out its program of buying and fixing vacant homes with help from 43 selected developers.

Since July last year, the city has already received over $150 million to turn about 2,000 foreclosures into affordable homes.

In addition, Freddie Mac has also launched its program to cut down the number pre foreclosed homes in Chicago. It will offer assistance to distressed borrowers through the Neighborhood Housing Services and the Latin United Community Housing Association.

Bank foreclosures are expected to continue rising in part because of the increasing number of homeowners prioritizing the payment of their credit cards over their home loans, according to a recent study released by Chicago-based research firm TransUnion.

The trend of prioritizing credit cards was already evident in the last quarter of 2007, but it only began to be noticed widely in the first three months of 2008 when 4.3 percent of homeowners were not paying their home loans but were current on their cards. The trend got more defined when the percentage climbed up in the third quarter of the same year to 4.9 percent.

Last year, in the second quarter, the percentage shot up to 6.3 percent and then further rose in the following quarter of July to September to 6.6 percent.

On the other hand, the percentage of homeowners who were current on their mortgage payments but not on their credit card payments in the July-September quarter last year dropped to 3.6 percent, compared to the 4.1-percent level in the first months of 2008.

According to Sean Reardon, consultant in the analytics unit of TransUnion and author of the report, said that the decision of risking homes to bank foreclosures is unconventional. American consumers have always paid their secured loans first before their unsecured debts, especially when it concerned their homes.

But the hard times have screwed priorities, according to Reardon, and people who have lost their jobs cannot be blamed. Their families have to eat, so they have to guard the credit cards that could buy them some time.

Reardon studied credit-card holding homeowners with a mortgage loan and examined their mortgage and credit card delinquency data between April 2008 and September 2009.

In the July-September quarter of 2009, the default rate for homeowners with low credit scores who are current on their cards but delinquent on their home loans was 29 percent, far above the 19.1-percent posted in the last quarter of 2007.

In contrast, the percentage of low-credit consumers who have defaulted on their cards but up-to-date on their home loans dropped in the third quarter last year to 14.5 percent, compared to 18.1-percent level in the first months of 2008.

According to Ezra Becker, a top financial services executive at TransUnion, the mortgage industry meltdown that caused record bank foreclosures has redefined how homeowners are handling their finances and debt payments.

The 500-member association has been lobbying for a bill that would allow non-judicial foreclosure proceedings in Florida starting July 1 this year. Non-judicial foreclosures would allow mortgage banks to foreclose on delinquent homeowners without filing cases in court.

In effect, judges would no longer have a say on foreclosures. Lenders can immediately foreclose on borrowers in default and can force them out of their houses quickly, in as short a time as three months.

Florida, which has been known for being fierce in protecting homeowner rights, is one of several states that have been implementing judicial foreclosure for decades. California, Texas, Alabama, Georgia and 33 other states have already approved non-judicial foreclosures.

With the lobbying power and determination of the banking association, they could get their way and add thousands more to the almost 517,000 foreclosure cases already filed statewide in 2009.

As travel- and tourism-related businesses slowed down in Florida and as the unemployment rate rose over the past several months, the number of repo homes for sale also increased. In December, the unemployment rate rose to 11.8 percent, up from 11.5 percent in November. It meant that more than one million Floridians were out of work as of December, out of a 9.18-million labor force.

Based on the provisions included in the bill, non-judicial foreclosure proceedings must be completed in not less than 3 months and not more than one year. With court involvement, foreclosures can take one year or two years to get done, and longer if lawyers launch an additional legal strategy.

The bill would also effectively nullify the mandatory mediation initiative recently launched by the state Supreme Court. The bill only provides for informal talks between lenders and borrowers.

The bankers also proposed to have the right to pursue delinquent homeowners for the unpaid portion of the mortgage debt even if they have already been evicted from their homes. They nevertheless provided a waiver under which they will forgive the full amount of the loan if borrowers do not trash the properties after they are foreclosed.

According to banking association head Alex Sanchez, the bankers want to help communities manage repo homes for sale, help housing associations collect dues from delinquent properties and to help courts overwhelmed by thousands of foreclosure and bankruptcy cases.

During the holidays, major banks deferred their scheduled foreclosures. They also have been allowing distressed borrowers to negotiate for loan modifications. Additionally, they have been strategically controlling the release of their foreclosed properties to the market in order to prevent sharp price declines and to lessen the impact of foreclosures on their books.

According to Laurie Bunn, top executive of an online real estate auction firm launched last year, her firm expects business to pick up in the second quarter.

Although foreclosure postings in Michigan were still rising over the latter part of last year, the number of completed foreclosures ready for auction has been declining due to various delays.

Based on figures from a California-based foreclosure research firm, the pace of foreclosure in Michigan was still among the highest in 2009. More than 118,000 houses across the state received default and foreclosure notices, marking an almost 12-percent jump from notices in 2008 and a nearly 36-percent increase from 2007.

Almost 1.4 residential units in Michigan were in the foreclosure process last year, ranking the state eighth in the U.S. in foreclosure rate.

Various delays, however, both as a business strategy and in compliance to the federal loan modification program, have slowed the entry of foreclosure properties into the market.

Even large auction firms like Texas-based Hudson & Marshall have not scheduled any foreclosed homes auction in February in Michigan.

In 2009, Hudson & Marshall sold off 966 foreclosed homes in Michigan, a significant drop from the 1,700 units sold in 2008. According to principal Dave Webb, the firm expects to auction off 600 units this year in the state.

Webb said that his firm, which conducts auctions across the nation, sold most Michigan homes in 2009 during the first months. He added that the three-month moratorium implemented by the state in 2009, in addition to the federal loan modification program, slowed down the foreclosure process.

REDC, another large auction firm, also only had a few Detroit foreclosures in its properties ready for auction this month. Nationwide, the firm sold off properties worth $3.4 billion in 2009.

According to Webb, his firm Hudson & Marshall will return to Michigan in the middle of March to hold a foreclosed homes auction for about 200 properties that have been listed for sale for more than three months.

Over the years from 1995 to 2007, 44 percent of all real-estate owned properties sold were flipped within a year. Flipping stepped up over time, peaking in 1998, when 55 percent of all REO sales were resold within one year. Flipping activities then slowed down, dropping to 37 percent of all REO sales in 2006 and to 32 percent of REO sales in 2007.

Furman researchers also found that flipping were very profitable for flippers. The median sales price represented an increase of 45 percent from the original purchase price. An REO home purchased for $300,000 was typically resold for $435,000.

Analysts contended that flipping during the boom years contributed significantly to the housing crisis. They said that flipping artificially pushed up home prices, drove appraisers to set higher home values, enticed homebuyers to purchase huge houses and take out larger loans.

Despite the fact that the number of New York City REO properties was far lower than inventories in other cities, the annual increases in the city were sharp and significant. In 2005, only 115 properties became REO, but 53 percent were flipped within a year. In 2007, 880 units became REO, but only 39 percent were flipped within a 12-month period.

From the first months of 2007 to the third quarter of 2008, the total number of REO units increased because REO sales were slow while REO units continued to enter listings.

In the first six months of 2009, the pace of REO sales was much faster than the entry of properties into REO listings, resulting in a drop in REO inventory. Of properties put into the foreclosure process in 2007, 14 percent went into auction by September 2009.

If buyers renovate REO units before they resell them, they are doing good not only to buyers but also to communities, but if they do only superficial improvements, they are deceiving buyers and putting them at risk. They are also adding more units to run-down properties in neighborhoods.

Furman analysts also reported that throughout 2008, REO properties were concentrated in Central Brooklyn, Eastern Queens, and the northern part of Staten Island.

Throughout 2009, a total of 62,775 foreclosure actions were filed in the state, far above the 48,698 foreclosures filed in 2008 and the 23,000 filings in 2006.

As the unemployment rate soared to 10.1 percent in December – higher than the nationwide jobless rate – more residents of New Jersey were forced into default and foreclosure.

The biggest rates of foreclosure increase in the state occurred in the counties of Bergen and Atlantic, with increase rates of 48 percent and 55 percent, respectively. The smallest rates of increase were in the counties of Essex and Cumberland, with increase rates of 12 percent and 11 percent, respectively.

Although not all foreclosure filings move on to foreclosure sales, as many distressed homeowners try their best to rescue their homes, a big portion of delinquency filings ultimately end up in lists of bank owned houses.

According to a report released by the U.S. Treasury Department, over 28,000 homeowners with home loans in New Jersey applied for loan modifications under the Obama administration’s foreclosure prevention program. But as of December last year, only 2,027 borrowers were able to have their mortgages modified permanently.

Meanwhile, based on records from the state Foreclosure Mediation Program, over 1,300 distressed homeowners were assisted to negotiate repayment arrangements with their lenders and about 50 percent were able to delay foreclosure proceedings. But analysts contend that job losses will bring most of these temporarily rescued mortgages into eventual foreclosure.

In a separate report released by a foreclosure tracking company based in California, the total number of residential units hit with foreclosure petitions in 2009 in New Jersey was 63,208, representing 1.8 percent of all housing units in the state. Foreclosure activity in 2009 stepped up by 1.1 percent from 2008 and by more than 103 percent from 2007.

Compared with other states, New Jersey was tenth in number of filings and was 14th in foreclosure rate. More than 2.8 million residential units across the U.S. were hit with foreclosure notices in 2009.

In December 2008, the jobless rate in New Jersey was only 6.8 percent. With a 10.1-percent jobless rate in December 2009, it is no wonder that bank owned houses grew in number last December.

More than 27,000 homes entered foreclosure in the counties of Manatee, Sarasota and Charlotte in 2009, a jump of 20 percent from foreclosure actions in 2008.

In Sarasota and Manatee, one homeowner out of every 19 residential units was notified of foreclosure, and in Charlotte, one out of every 15 residential units fell into default or foreclosure.

In December, 447 homes in the county of Sarasota were taken back by banks, a significant jump from only 97 in the previous month. Sarasota posted the fourth biggest number among Florida counties in December.

While Sarasota registered a month-over-month increase in December, foreclosures in Charlotte and Manatee dropped by ten percent from November, although Charlotte posted a 12-percent increase compared to December 2008.

Despite being a smaller county based on population, Sarasota posted much higher foreclosures in December than counties with much higher number of households such as Orange County, Palm Beach and Hillsborough County. Orange County posted 281 repo houses for sale in December, Palm Beach posted 261 units and Hillsborough posted 251 units.

Real estate businesswoman Kathy Marlowe said that the number of bank-repossessed properties increased in 2009, particularly in Sarasota, but she added that banks are still holding off on a lot of properties, either by not releasing properties in their current inventories or by not completing their foreclosure proceedings.

Marlowe said that buyers are looking for more foreclosure properties in Southwest Florida, but banks have been regulating the release of units into the market.

Additionally, foreclosure numbers could have been higher in the region if the state mediation program and other nonprofit-sponsored foreclosure prevention initiatives were not implemented.

Statewide, nearly 517,000 residential units entered foreclosure in 2009, with more than 55,000 units notified in December. December marked another month of increases, as total foreclosures for the month marked a four-percent jump from November and a nine-percent jump from December 2008.

Real estate consultant and analyst Jack McCabe stated that foreclosures will still increase in Florida in 2010 because of continued economic difficulties.

McCabe also said that the refusal of banks to reduce principal amounts is also seen as a major reason for the failure of the Home Affordable Modification Program to cut down the number of repo houses for sale in Florida and in other states.

The city has formed a nonprofit agency called AURA – which stands for Alexandria Urban Renewal Association – to work with the city Office of Community Development to rejuvenate neighborhoods and to help lower-income families own homes.

The Alexandria affordable housing program under the federal Neighborhood Stabilization Program is among the most unique NSP programs because aside from forming a nonprofit, the program also uses the bulk of its funding for building affordable apartments and single-family homes, in contrast to other NSP-funded programs that focus on purchasing foreclosed properties, fixing them and reselling them.

According to Brenda Ray, community development manager for the city, Alexandria has received a total of $3.9 million in NSP funds. The city has planned to spend $1.25 million for converting the Dominique-Miller barn into 56 apartments, $1.65 for building 33 affordable houses, and $1 million for acquiring distressed properties for its land bank program.

Under the land bank program, the city will acquire abandoned foreclosed properties – those that have been vacant for a long time and have been causing blight in communities – and convert them into functional but cheap homes for sale to families that could not afford to buy homes without government assistance.

Of the 33 houses to be built in Alexandria, 30 units will be built by Lafayette-based B.R. Collins Construction and three units will be built by Habitat for Humanity. The houses will be offered to prospective buyers earning certain percentages of the median household income in Alexandria. A four-member family earning less than $57,750 can qualify under the program. Families earning far below the median income can qualify for the Habitat homes.

City officer Ray said that each buyer can receive up to $45,000 in financial assistance from the NSP funds. She added that without the federal funding, the city would not be able to jumpstart the program, but city officials hope to continue the project even after the exhaustion of federal funds.

Council officials Myron Lawson and Jonathan Goins said they are supporting the program because it is one effective way to improve property values and to enhance life for residents throughout the city.

In addition to providing cheap homes for sale to lower-income families, Lawson also reiterated the need for the city to make families safe and secure by lowering the crime rate in the city.

Since July last year, the firm has purchased and resold about 33 foreclosed homes in the county, earning from $5,000 to $10,000 from each sale. Its repair and improvement costs typically cost between $10,000 to $15,000.

According to Rob Helmick, brother of Gorilla co-founder John, the firm participates in the daily foreclosure auctions at the court in DeLand, but it chooses its properties selectively. He said he looks at about 400 foreclosed houses a week before purchasing one or two units. He added that anyone entering the business should do research and gather experience.

Rob Helmick also added that his firm’s strategy is to beat short sales on price and on speed of delivery. He said that his team can finish remodeling a house in 2 weeks and resell the rehabilitated unit at about $10,000 to $20,000 lower than adjacent homes.

Another strategy used by Gorilla Capital to be able to buy cheap houses for sale is to buy only at foreclosure auctions administered by courts. Helmick said that not only are properties bought at auction lower-prices, they are also free of difficulties associated with negotiating with lenders and delinquent homeowners.

Circuit court operations chief Barbara Long said that Gorilla is the only out-of-state firm buying foreclosures in Volusia. It also participates in the auctions every day and buys regularly.

Phil Maroney, head of the Daytona Beach Association of Realtors, said that he lauds the firm for recognizing the opportunity that exists in the area. He added that current prices are advantageous to investors.

Helmick said that after he purchases a home, he lists it at gorillacapital.com with pictures and sends emails to registered buyers who are given three days to send a purchase offer. Buyers can make offers on the as-is condition or on partially remodeled and fully remodeled conditions. Full renovation includes repairs on the roof, walls, heating and cooling systems, pool and other major parts of the house.

Around one-third of sales are sold to registered buyers, according to Helmick. The rest are sold to buyers searching the Internet randomly or to buyers waiting for Helmick when he visits the properties.

Helmick stated that it is heartening for him to be able to turn previously awful-looking structures into great but cheap houses for sale, help families own homes and help rejuvenate foreclosure-clobbered neighborhoods.

These analysts noted that home prices rose during the months of May to September, based on data from Standard & Poor’s/Case-Shiller, but they also stated that price levels remained flat in October. They predicted that house prices will drop by at least three percent in 2010.

Financial analysts at Fiserv Lending Solutions meanwhile predicted that house prices will decrease in 342 out of the 381 housing markets that it has been monitoring and that prices will drop by 11.3 percent on the average.

IHS economist Newport said that despite recent stabilization in house prices due largely to record-low mortgage rates and to tax credit and related first time home buyer incentives, home prices will decrease in 2010 because of three reasons: the expected increase in mortgage rates, the scheduled expiration of home buying tax incentives and the continued increase in foreclosed property sales.

Faucher of economy.com supported Newport’s contention by stating that the level of foreclosures this year will again be significant enough to dampen the nascent recovery of home prices in several housing markets.

Faucher predicted that home prices will drop by another 8 percent and that the biggest rate of decreases will occur in the most foreclosure-battered states like California, Arizona, Florida and Nevada.

Aside from the shortcomings of the federal loan modification program, other reasons for the continued rise in foreclosures, according to analysts, are the scheduled resetting of adjustable rate mortgage loans, the rise in strategic defaults among underwater borrowers, the upward movement of mortgage rates and the expiration of home buying tax incentives.

Olefson, who wrote the book “Foreclosure Nation: Mortgaging the American Dream,” said that a big percentage of over 350,000 homeowners with pay option ARM loans will default because of the drastic increase in monthly payments. She also predicted that many will deliberately default as the values of their houses plunge far below the amounts of their home loans.

Olefson predicted that home prices will fall by 5 to 15 percent in 2010, with around 10 percent as the median rate of price decrease.

One economist who predicted an increase in home prices despite the continued influence of foreclosed property sales in 2010 is Lawrence Yun of the National Association of Realtors who predicted a house price increase of more than 3 percent.