Foreclosure rates are defined as mortgages in the foreclosure process as a percentage of all mortgages. These rates vary fairly dramatically across states. While the average foreclosure rate in the 50 states and the District of Columbia in the second quarter of 2007 was 1.25 percent, these rates ranged from a high of 3.60 percent in Ohio to a low of 0.44 percent in Wyoming. One state that has exhibited high foreclosure rates over the past decade is Indiana. Indiana ranked second highest after Ohio in the second quarter of 2007 with a foreclosure rate of 3.01 percent. The goal of this article is to look at the determinants of state foreclosure rates with particular attention to the set of factors referred to in discussions of Indiana’s high rates. Three primary factors have been responsible for Indiana’s high foreclosure rates: the poor performance of the housing market and economy, the high levels of subprime and FHA borrowing in the state and the relatively long duration of Indiana foreclosures. However, even after taking these factors into account, Indiana’s foreclosure rates are higher than would be anticipated.
The Federal Reserve Bank of Chicago’s consumer and community affairs department has, since the mid-1990s, worked with various Seventh District organizations and agencies to address foreclosures and their harmful impact in communities. Most notably, the Reserve Bank has supported and partnered with Neighborhood Housing Services (NHS) of Chicago to mitigate the destabilizing effect that foreclosures have on vulnerable communities – those with older housing stock, lower income, largely minority (and/or recent immigrant) populations and little commercial or retail investment. The Homeownership Preservation Initiative (HOPI) was conceived and established by NHS, and is the organization’s principal vehicle to address foreclosures in vulnerable Chicago communities. The partnership’s results have generated national attention, and strong interest in adapting its methods to other parts of the country, which is ongoing. HOPI’s success is due in large part to committed partners that include the City of Chicago, which has made critical investments in call centers for homeowners, among other steps, and financial institutions such as JPMorgan Chase, Citigroup, HSBC and GMAC/RESCAP, which have committed staff and resources, and worked with NHS creatively to open lines of communication and assistance between investors and servicers on one side, and counselors and homeowners in default on the other.