Illinois is home to most seriously delinquent mortgages in Midwest

Data reveals 5.7% of Illinois homeowners are at least 90 days behind on their payments.

Low mortgage rates, pent up housing demand and low inventories have resulted in a hot real estate market around the country and within Illinois, with sales prices rising substantially over the past year. Despite the boom, more Illinois homeowners are seriously delinquent – more than 90 days or in foreclosure – on their mortgages than any other state in the Midwest.

In Illinois, 5.7% of homeowners were seriously delinquent at the end of 2020, according to data from the Mortgage Bankers Association. That’s far higher than most Midwestern states, with the next closest being Indiana and Ohio both at 5.1%. South Dakota had the lowest percentage of seriously delinquent mortgages at 3.1%.

Delinquencies in Illinois compared to the rest of the Midwest should come as no surprise, as the state was among the hardest hit by the COVID-19 downturn and state-mandated lockdowns in 2020. Gross economic output declined by 30.6%, annualized, in the second quarter of 2020. Employment also declined by 799,500 from February to April, according to data from the Illinois Department of Employment Security. More than a year after the first COVID-19 case on U.S. soil, Illinois’ unemployment rate remains above 7%, among the highest in the nation.

Last year, Illinois Policy Institute research correctly predicted record job loss would result in high levels of mortgage delinquency. This is because job loss has implications for households’ finances and their ability to pay the bills. In the second quarter of 2020, the Illinois mortgage delinquency rate soared to 8.4%, the highest in the Midwest, a level only surpassed by the 2009 housing crisis.

Since then, the delinquency rate has fallen – but not by much.

The stagnant jobs recovery means many homeowners are in financial trouble. New data released by the Mortgage Bankers Association reveals 7.7% of mortgages are still delinquent and 74% of those mortgages are considered seriously delinquent – past due by 90 days or more.

Before COVID-19, Illinois already had a large number of underwater homes as well as the second-highest foreclosure rate in the country as of February 2020. In 2020, the Chicago metropolitan area had the largest share of homeowners delinquent on their mortgages.

The problems that weakened Illinois’ housing markets before the pandemic – property tax hikes despite falling public investments and deteriorating amenities – have made the pandemic worse for Illinois homeowners, especially those who lost their jobs, when compared to other states.

In the past two decades, less than 50 cents of every additional dollar paid in property taxes went to pay for services. Statewide, only 20% of the increases in property taxes collected for municipal police and fire departments went towards protective services. The bulk of new tax collections went to pensions. This is because growth in pension costs statewide has exceeded Illinoisans’ ability to pay the bills. All else equal, when rising property tax dollars do not go toward valuable current services, Illinois housing becomes less desirable, thus lowering home equity.

With a global pandemic, the lack of housing wealth means many homeowners are stuck, desperately holding onto their homes and falling behind on mortgage payments. This could partially explain low inventory across Chicago and the rest of the state.

If the value of your home goes up, then you are probably not going to experience delinquency. On the other hand, if you become unemployed and are already “upside down” on your loan – owing more on your mortgage than your home is currently worth – then you are more likely to enter delinquency.

There are also lingering questions about what effects increased unemployment benefits will have on the state’s labor market recovery and how the federal foreclosure suspension has affected delinquency.

Although a win against COVID-19 will help Illinois’ struggling economy, it will not fix the damage done by decades of fiscal mismanagement. Pension reform can shore up state and local government finances, protect core services and reduce housing costs for struggling Illinois homeowners.