QUESTION

Roosevelt University
FIN351 – Neighborhood Housing Assignment

Due April 12, 2012

Mercy Portfolio Services has received $100 million in TARP funds to help Chicago area
homeowners who are facing foreclosure.  They will buy up distressed mortgage debt and offer to forgive
some of the debt so the homeowner will no longer be underwater.  They will work with the homeowner
to help them become current.  If successful, they will help the homeowner refinance.  Alternatively, if
this fails they will foreclose and sell the property.  (See Crain’s Chicago Business, Sept. 26, 2011, p. 3.)

An agent of Mercy has asked for your help in evaluating the strengths and weaknesses in
Chicago’s 77 neighborhoods to determine where it is best to place their funds.  They would like to target
neighborhoods where their investment is more likely to result in a successful rescue of homeowners
from foreclosure.  Mercy needs a report that provides basic economic information on the neighborhood
(e.g., available information on neighborhood history, employment/unemployment, income, commercial
development, etc.), recent foreclosure and lending activity, and the movement of home prices.  The
agent asks that you provide information on one neighborhood.  You can choose your own neighborhood
or one that you find interesting or one where you can find the best data.

You can view some basic lending and foreclosure data by neighborhood on the Woodstock
Institute website in their Fact book (http://www.woodstockinst.org/factbook/).  You can use this data to
discuss how hard the neighborhood has been hit by foreclosure, and who was and still is lending to this
neighborhood.  A comparison of data on this neighborhood to data for Chicago as a whole will provide
some perspective.

You can get home price information from the October 2010 and October 2011 issues of Chicago
Magazine.  The cover stories provides a good overview about current housing markets in Chicago.  The
2010 issue is available on line at http://www.chicagomag.com/Chicago-Magazine/October-2010/RealEstate-2010-House-Prices-in-Chicago-and-the-Suburbs/.

The 2011 issue is available at http://www.chicagomag.com/Chicago-Magazine/October2011/Real-Estate-2011-House-Prices-in-Chicago-and-the-Suburbs/
and
in the Chicago
Public
Library.

Sales
and
price
data will
provide
some
insight
into
change
in
value
and
the
whether
there
is
relatively

weak
or
strong
sales
activity.

It
will
be
useful
to
compare
data for
your
neighborhood
to
Chicago
area
averages
or
to
data
for
a neighborhood
that
you
think
is comparable.

FIN/REES 351 Spring 2012 Page 1
Roosevelt University
Accompanying your written report with graphic information on prices, sales, foreclosure and
lending will increase its information value for Mercy.

You can bring in any anecdotal information you have about the neighborhood such as schools,
employment, parks, transportation, etc. Google your neighborhood name and see what additional
information and opinion is available.

Finally, Mercy would appreciate your bottom line opinion on whether their program is likely to
help homeowners in this neighborhood.  There is no right or wrong answer.  You will be graded on your
presentation of the information you choose to include and on your overall assessment of whether the
neighborhood will be a good fit for the Mercy program.

SOLUTION

1. Introduction

Mercy Portfolio Services has received $100,000 in cash to TARP funds to help Chicago area homeowners who are facing foreclosure. The aim of the portfolio is to buy distressed mortgaged property from and forgo some of the debt to the homeowner. The services would even help the homeowner re finance the property in case of failure to sell the property.

The aim of the paper is to evaluate and analyse the strengths and the weaknesses of the housing re-sale and foreclosure market in Chicago to enable Mercy Corporation to successfully conduct their foreclosure activities in the given Chicago neighbourhood.

2. Strengths and Weaknesses of the Chicago Housing Market

The American housing market has been under stress ever since the break of the subprime crisis in 2008. The subprime crisis not only affected the housing market but adversely created pressure on the borrowers who were unable to repay loans and mortgages undertaken on the real estate properties. This has caused an increase in the foreclosure activities and similar has been the case with the Chicago neighbourhoods which have also been affected by the liquidity strain in the American housing market.

Even though the market has remained distressed over the past 5 years, researchers and analysts have also found a ray of hope in the Chicago Market. This is proven because of the fact that 20% of the 77 neighbourhoods under study have experienced an increase in sales over the past one year. No predictable pattern has been established with the sales but there is clarity than higher income and middle income have increasingly preferred the north and south ends of the city. Studies have proven that the home prices in the Chicago market have declined by over 33% from their peak in 2006. Thus the housing market gloom is clearly evident.

Housing Mortgage remains a major concern for the people in the community who can neither afford to sell their existing property nor buy new ones because of high mortgage charges. Failure to repay the mortgages has increased the foreclosure activities in the Chicago market. The foreclosure activities were successful when the housing market was at its peak in 2006 with the successful foreclosures of over a 1000 in 2006, the amount of foreclosures have continued to increase from 2006-2007, the completed foreclosures have faced a considerable decline in 2008 owning to the housing market crisis and have continued to face decline until 2011(Chicago City and Regional Foreclosure Activity, 1-5). Thus completing the foreclosure activity for Mercy Portfolio would not be easy.

In relation to the refinancing of mortgages it should be clearly be understood that the mortgage charges in the market continue to remain extremely high in the real estate market. The Chicago mortgage market has high interest rates with 3.56% for a period of 15 years, 2.91% for a period of 5 years period and 4.93% for a period of 30 years fixed(www.bankrate.com, 1). The charges continue to be high, therefore Mercy’s idea of proposing a possible re-financing may also not prove to be profitable for Mercy because there is inability existing among the community to repay the existing mortgage. But, on the other hand there is a possibility that the refinance may be successful because of the banks fear of losses, the banks and the loan lenders may agree to refinance the mortgages to ensure some pay back from the people. Therefore, refinancing may be considered a profitable opportunity for Mercy and Mercy can effectively allocate their investment to achieve high rate of returns on them.

Let us consider an example in the Last spring, the owners of a 7 years old Bucktown home put in the market at $799,000, mere 79% of the $1.007 million they had paid for it in 2006. Eight days later, it was under contract at $800,000. Even though there was a loss of $207,000 lost in the deal, but however the deal fetched at least gave a return. Therefore the refinance was profitable similar deals would also benefit Mercy (Chicagomag.com- accessed on 24/4/2012, 1-5).

3. Conclusion

The gloom is very evident in the real estate market in Chicago. There are extremely limited opportunities available for Mercy. Mercy cannot benefit greatly from the foreclosures and the auctioning market as the market still continues to remain gloomy. But however can target the upper and middle income groups to achieve partial success in the market. The refinancing option poses an ample opportunity for Mercy the refinancing would ensure creation of some profitability to some extent both for banks as well as for the corporation itself. The realty market faces tough conditions and the strain is likely to remain, therefore Mercy has be extremely cautious in the allocation of the resources of create maximum profitability in the limited opportunity.

4. References

• “Real Estate 2010: House Prices in Chicago and the Suburbs.” chicagomag. N.p., n.d. Page 1, Web. 24 Apr. 2012. <http://www.chicagomag.com>.
• Rodkin, Dennis. “Real Estate 2011: House Prices in Chicago and the Suburbs – Chicago magazine – October 2011 – Chicago.” Chicago magazine – Dining, Shopping, Fashion, Entertainment, Real Estate, News and Events. , Page 1-5N.p., n.d. Web. 24 Apr. 2012. <http://www.chicagomag.com/Chicago-Magazine/October-2011/Real-Estate-2011-House-Prices-in-Chicago-and-the-Suburbs/>.
• Rodkin, Dennis. “Real Estate 2011: Home Prices – Chicago magazine – October 2011 – Chicago.” Chicago magazine – Dining, Shopping, Fashion, Entertainment, Real Estate, News and Events. N.p., n.d. ,Page 1 Web. 24 Apr. 2012. <http://www.chicagomag.com/Chicago-Magazine/October-2011/Real-Estate-2011-Home-Prices/>.
• “Average mortgage rates and points in the top 10 metropolitan markets.” Mortgage Rates Credit Cards Refinance Home CD Rates by Bankrate.com. N.p., n.d.,Page 1  Web. 24 Apr. 2012. <http://www.bankrate.com/brm/news/m
• Woodstocks, Institute. “Chicago City and Regional Foreclosure Activity First Half 2011.”
• Chicago City and Regional Foreclosure Activity First Half 2011 1.1 (2011): Pages 1-8. Print.

KD48

But you can order it from our service and receive complete high-quality custom paper.  Our service offers Accounting  essay sample that was written by professional writer. If you like one, you have an opportunity to buy a similar paper. Any of the academic papers will be written from scratch, according to all customers’ specifications, expectations and highest standards.”