Foreclosure fallout

From Crain's Chicago Business...

Lisa Williams' Austin flower shop thrived for most of its first three years.

Then, eight months ago, sales started falling. Thieves broke into the store twice in one week, making off with the cash register. Ms. Williams laid off her 15 employees as sales plunged 40% in six months. Feeling unsafe, she now closes her North Avenue store at 1:30 p.m. instead of 6 p.m.

"I don't see me making it here," Ms. Williams, 43, says.

Her business woes coincide with a wave of foreclosures that claimed more than 800 homes in Austin last year and shows no sign of abating. Driving the foreclosures are rising interest rates on subprime loans, which only a few years ago helped give the West Side neighborhood its first hope for recovery in decades.

"Austin was going through this resurgence," says Steven McCullough, executive director of Bethel New Life, a community group in the neighborhood. "I am worried that all our gains in the community will be lost."

Similar stories are playing out in neighborhoods across the city and suburbs as they absorb the effects of skyrocketing foreclosures. Home values are falling, businesses are hurting, city services are under strain and the social fabric is fraying.

More foreclosures are coming as adjustable-rate mortgages continue to reset higher than homeowners can afford to pay.

Most ominous, lenders have tightened credit standards and withdrawn from some neighborhoods altogether. Without mortgage loans, boarded-up homes lining the streets of Austin and other areas will remain vacant.