Hocking the house for quick cash is a lot harder than it used to be, and it’s causing headaches for homeowners, banks and the economy.

During the housing boom, millions of people borrowed against the value of their homes to remodel kitchens, finish basements, pay off credit cards, buy TVs or cars, and finance educations. Banks encouraged the borrowing, touting in ads how easy it is to unlock the cash in their homes to “live richly” and “seize your someday.”

Now, the days of tapping your house for easy money have gone the way of soaring home prices. A quarter of all homeowners are ineligible for home equity loans because they owe more on their mortgage than what the house is worth. Those who have equity in their homes are finding banks far more stingy. Many with home-equity loans are seeing their credit limits reduced dramatically.

The sharp pullback is dragging on the economy, household budgets and banks’ books. And it’s another sign that the consumer spending binge that powered the economy through most of the decade is unlikely to return anytime soon.

At the peak of the housing boom in 2006, banks made $430 billion in home equity loans and lines of credit, according to the trade publication Inside Mortgage Finance. From 2002 to 2006, such lending was equal to 2.8 percent of the nation’s economic activity, according to a study by finance professors Atif Mian and Amir Sufi of the University of Chicago.

For the first nine months of 2009, only $40 billion in new home equity loans were made. The impact on the economy: close to zero.

“The home as ATM is yesterday,” says Keith Gumbinger, vice president of HSH Associates Financial Publishers, which publishes consumer loan information.

Millions of homeowners borrowed from the house to improve their standard of living. Now, unable to count on rising home values to absorb more borrowing, indebted homeowners are feeling anything but wealthy.

Holly Scribner, 34, and her husband took out a $20,000 home equity loan in mid-2007 — just as the housing market began its swoon. They used the money to replace sinks and faucets, paint, buy a snow blower and make other improvements to their home in Nashua, N.H.

The $200 monthly payment was easy until property taxes jumped $200 a month, the basement flooded (causing $20,000 in damage) and the family ran into other financial difficulties as the recession took hold. Their home’s value fell from $279,000 to $180,000. They could no longer afford to make payments on either their first $200,000 mortgage or the home equity loan.

Scribner, who is a stay-at-home mom with three children, avoided foreclosure by striking a deal with the first mortgage lender, HSBC, which agreed to modify their loan and reduce payments from $1,900 a month to $1,100 a month. The home equity lender, Ditech, refused to negotiate. Scribner’s husband, Scott, works at an auto loan financing company but is looking for a second job to supplement the family’s income.

The family is still having trouble making regular payments on the home-equity loan. The latest was for $100 in November.

“It was a huge mess. I ruined my credit,” Holly Scribner says. “We did everything right, we thought, and we ended up in a bad situation.”

It’s a mess for the banking industry, too.

Home equity lending gained popularity after 1986, the year Congress eliminated the tax deduction for interest on credit card debt but preserved deductions on interest for home equity loans and lines of credit. Homeowners realized it was easier or cheaper to tap their home equity for cash than to use money taken from savings accounts, mutual funds or personal loans to fund home improvements.

Banks made plenty of money issuing these loans. Home equity borrowers pay many of the costs associated with buying a home. They also may have to pay annual membership fees, account maintenance fees and transaction fees each time a credit line is tapped.

In 1990, the overall outstanding balance on home equity loans was $215 billion. In 2007, it peaked at $1.13 trillion. For the first nine months of 2009, it’s at $1.05 trillion, the Federal Reserve said. Today, there are more than 20 million outstanding home equity loans and lines of credit, according to First American CoreLogic.

But delinquencies are rising, hitting record highs in the second quarter. About 4 percent of home equity loans were delinquent, and nearly 2 percent of credit lines were 30 days or more overdue, according to the most recent data available from the American Bankers Association.

A rise in home-equity defaults can be particularly painful for a bank. That’s because the primary mortgage lender is first in line to get repaid after the home is sold through foreclosure. Often, the home-equity lender is left with little or nothing.

Banks are applying the brakes.

Bank of America, for example made about $10.4 billion in home equity loans in the first nine months of the year — down 70 percent from the same period last year, spokesman Rick Simon says. The also started sending letters freezing or cutting lines of credit last year, and will disqualify borrowers in areas where home prices are declining.

“This was just solid risk management,” he says.

Jeffrey Yellin is in the middle of remodeling his kitchen, dining room, living room and garage at his home in Oak Park, Calif. He planned to pay for the project with his $200,000 home equity line of credit, which he took out in January 2007 when his house was valued at $750,000.

In October, his lender, Wells Fargo, sent a letter informing him that his credit line was being cut to $110,000 because his home’s value had fallen by $168,000, according to the bank.

He is suing the bank, alleging it used unfair standards to justify its reduction, incorrectly assessed the property value, failed to inform customers promptly and used an appeals process that is “oppressive.” Jay Edelson, a lawyer in Chicago who is representing Yellin, says homeowners are increasingly challenging such letters in court. He says he’s received 500 calls from upset borrowers.

Wells Fargo declined to comment on Yellin’s lawsuit but said it reviews of customers’ home equity lines of credit to make sure that account limits are in line with the borrowers’ ability to repay and the value of their homes.

“We do sometimes change our decisions when the customer provides sufficient additional information,” Wells Fargo spokeswoman Mary Berg said in a statement e-mailed to The Associated Press.

Work has stopped at the Yellin’s home. The backyard, used as a staging area for the remodeling job, is packed with materials and equipment.

“Now, I’ve got a backyard that looks like ‘Sanford and Son’ almost,” he says.

ADRIAN SAINZ

AP Real Estate Writer

NEW YORK (AP) — Home prices rose for the fifth month in a row in October, but the recovery is shaky with only 11 of the 20 metro areas tracked showing gains.

The Standard & Poor’s/Case-Shiller home price index released Tuesday edged up 0.4 percent to a seasonally adjusted reading of 145.36 in October from September. Without adjusting for seasonal factors the index was flat.

The index was off 7.3 percent from October last year, nearly matching expectations of economists surveyed by Thomson Reuters. Many economists, however, are predicting a double dip in prices this winter as foreclosures increase and government support wanes.

“I’d be very surprised if we don’t go below the lows we hit this year,” Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning Washington think tank. “We still have a very glutted housing market.”

The index is now up 3.4 percent from its bottom in May, but still almost 30 percent below its peak in April 2006.

There are also wide variations from around the country. Prices have climbed for at least six months in a row in Denver, Washington, Minneapolis and San Francisco, for example.

“We saw an unusually low amount of inventory on the market,” which helped prices firm, said Frank Castaldini, an agent with Coldwell Banker in San Francisco.

Properties at the lower end — between $500,000 and $600,000 — also received multiple bids, partly due to a federal tax credit for first-time homebuyers, he said.

But in Chicago and Tampa, Fla., prices fell slightly from September. And there’s no sign of a bottom in Las Vegas, where prices have tumbled by more than 56 percent from their peak in April 2006.

“People hear prices are getting better, but they’re not here,” said Penny O’Brien, a real estate agent with Re/Max Experience in Las Vegas. “Unemployment has got people scared of purchasing.”

The tax credit didn’t make a big dent in the Las Vegas market either, O’Brien said, because many first-time buyers were elbowed out by all-cash investors.

Home prices play a key role in the economy. Homeowners feel wealthier when property values rise and are more likely to spend money. Rising prices also help millions of homeowners who owe more to the banks than their houses are worth.

The positive trend in home prices and a better employment outlook helped raise the Consumer Confidence Index to 52.9 in December, up from a revised 50.6 the month before, the Conference Board reported Tuesday. While far below a 90 reading that would signify a solid economy, consumers’ outlook on jobs over the next six months reached its highest level in two years.

The federal government has stepped in with far reaching programs to create jobs and make homeownership more affordable.

Home price gains since the summer reflect the rush of homebuyers trying to close their deals before the original expiration date of a federal tax credit. The Nov. 30 deadline was extended last month to April 30.

Besides a credit of up to $8,000 for first-time buyers, Congress expanded the program to include homeowners who have lived in their current properties for at least five years. They can now claim a tax credit of up to $6,500 if they relocate.

The Federal Reserve is also buying up $1.25 trillion in mortgage-backed securities to help keep interest rates at historical lows.

___

AP Real Estate Writer Alan Zibel in Washington contributed to this report.

J.W. ELPHINSTONE
Chicago Tribune

So the president says insulation is sexy.

This brow-furrowing statement leads us to wonder just what kind of videos the man may be watching late at night within the private quarters of the White House. Bob Vila reruns, maybe?

For the record, what Barack Obama said, specifically, was: “Here’s what’s sexy about it: saving money.”

He said this recently as he stood in a Home Depot in Alexandria, Va., making a media push for “cash for caulkers.” That’s his proposal to provide incentives for homeowners to tackle energy-smart, bill-reducing home renovations. The plan hit a thud in its first go-round in Congress, but the White House isn’t pronouncing the idea dead.

But, clearly, he has come out full force in favor of fixing up your home. And, if my story on the first page of this section finds you in the mood to renovate the family manse, here are a couple of new and novel home-renovation tools that have come to my attention lately:

–Apparently it isn’t enough to install ceramic tile that just looks good. Now, the simple household tile seems empowered to keep you healthy and save the planet.

StonePeak Ceramics has introduced Active Clean Air & Antibacterial Tiles, which are made with titanium dioxide, a compound that shows up in products ranging from sunscreen to ink to tennis-court striping paint. (Although some researchers have expressed concerns about titanium dioxide itself, the company’s Italian parent, Centro Ceramico, says its particular application poses no risk.)

StonePeak, based in Chicago, claims that the Active tiles degrade certain household pollutants when they come into contact with either sunlight or artificial ultraviolet light. They also have a hygienic effect, helping to reduce staphylococcus aureus, E. coli and other undesirable microscopic household creatures, the company says.

A StonePeak spokesman said that titanium oxide has been used in home building products previously, but its Active line is the first time it has been used in ceramic tile and the first time such tiles have been manufactured in the United States. More details: www.stonepeakceramics.com.

–Also in the category of multitasking building products, we have the EcoBlu Products line of coated lumber that claims to resist mold, termites and even fire.

Fire-resistance claims for its BluWood framing lumber, which has an unmistakable Smurf-like hue, have been independently tested, according to the Vista, Calif., company. More details: ecobluproducts.com.

And, the president no doubt will be happy to hear this, the company has just introduced a line of insulation. The product, called Cool Blu, is made from 85 percent recycled paper fiber.

Rest in peace Couldn’t let the year end without mentioning this: It would be an understatement to say that the National Association of Realtors guards the use of its trademark, um, zealously. But now we have word of a new policy:

It’s now OK, the Chicago-based trade association reassures its members, to chisel the Realtor logo into your tombstone.

Mary Umberger
Chicago Tribune

‘Twas only a few years ago, when the housing boom was in full roar, that homeowners didn’t have to fret too much over whether the money they invested in remodeling would be paid back at resale time.

Indeed, it was practically a no-brainer: Home sale prices were going up so high and so fast that remodeling the kitchen or the master bath would nearly pay for itself. Some remodeling companies had so much backlogged work that clients passed the time on waiting lists.

“These days, it’s a new ballgame,” said Sal Alfano, a former contractor who now is the editorial director for Remodeling magazine, a trade journal. “Now, the jobs are smaller, the scope of work has been cut back, and consumers are doing things in phases.”

And, he said, consumers are squinting harder at contractors’ estimates, not only to push down costs but also to decide whether the price of that redone kitchen or master bath is going to pay them back anything when it comes time to sell in a market that has become notoriously fickle and with home prices sliding.

Such born-again cost-consciousness makes complete sense in the current economy, Alfano said, but he’s concerned that the infatuation with the contractor who offers the lowest bid will come back to haunt consumers.

Each year, Alfano’s magazine partners with the National Association of Realtors to produce the Cost vs. Value Report, a massive numbers-crunch that tries to ballpark the return on investment for dozens of home-improvement projects, nationally and regionally, in addition to numerous metro areas, including Chicago.

It’s an ongoing slide, he said. Nationwide, the payback at sale on remodeling, in general, peaked in 2005 (the height of the housing boom) at 86.7 percent, according to the magazine survey of the remodeling industry and NAR members.

“That is,” he said, “it was costing you 13 cents on the dollar to build just about anything (if you were selling the house in a relatively short period).

“That’s pretty cheap,” he said. “Then it sank like a rock, ending up at 76 percent, or 10 points lower than the year before.”

In the 2009 survey, the average payback, nationally, was about 64 percent, according to magazine data.

That’s almost exactly the average for 33 remodeling projects analyzed in the Chicago area in the 2009 survey. Heading the costs-recouped list here were not the glamour kitchen/bath projects, but smaller-scale and more utilitarian jobs.

The best returns here, according to the report, were on midrange entry-door replacements (115 percent return at sale) and upscale fiber-cement siding replacements (85.8 percent).

The magazine extensively defines the parameters of each project, citing specific materials and overall price ranges, all gleaned from cost-estimating software used in the remodeling industry. In addition, this year 4,000 members of the Realtors’ group weighed in on how the improvements might pay back at resale in their local markets. The full report is at remodeling.hw.net.

A midrange major kitchen remodel in Chicago (average cost: $67,332) recouped about 67 percent at sale time. An upscale bathroom remodel here ($63,402) recouped about 50 percent, according to the study.

Despite the data, not all consumers are reining in and battening down, some remodelers say.

“For the people who have the ability and want to do a kitchen remodel, I’m not seeing them skimping,” said Bryan Nooner, chairman of Distinctive Remodelers in Orland Park.

“Pretty typically, we’re seeing kitchen remodels in the $40,000 to $70,000 range. They’re spending what they want to. They still want the granite (counters), they want upgraded wood-cabinet species such as maple or cherry, and we’re doing few standard wood stains — most everybody wants a hand-rubbed finish.”

One of his recent clients, Frank Toland, said resale value wasn’t a consideration when he recently remodeled the kitchen of his Mokena home. He said the job cost about $70,000, in addition to upgrades elsewhere in the house that were done at the same time.

“Resale really didn’t factor in at all,” Toland said. “We’re not planning on moving. We’re planning on staying there, and that’s why we decided to do it the way we wanted.

“We hope that the money we put in, eventually we’ll get it out. But we said, let’s do it the way we want it done rather than cut costs because of resale value.”

Matt Draus, who owns Descon Construction in Oak Park, also said he’s hearing from customers who are thinking long term.

“We see people who have a little bit of money and decide they’re not going to move for five years because of the real estate market,” Draus said. “But we’re not seeing the big blowout room additions.”

Instead, he said, he’s seeing smaller projects and more emphasis on maintaining and updating existing features.

But more so than in recent years, he said, money talks.

“Cost is definitely getting much more scrutiny now,” he said. “It’s all about cost, that’s a No. 1 priority.”

But Draus said that bottom-lining often seems to be coming at the expense of quality. Driven by the slumping economy, the remodeling-industry ranks are swollen with newcomers and some tradespeople who are eager to have any income at all, he said.

“I’m [offering estimates] against people who aren’t honest and upfront and are low-balling it in order to get the work,” he said. “There are a lot of good builders out there, but there are a lot of others who are making times harder for the rest of us.”

Alfano agreed, and urged homeowners to be cautious when considering bids that are significantly below competitors’.

“What we couldn’t account for [in estimating costs for the magazine study] was the number of jobs where the contractor cut his overhead or his profit just to keep busy, hoping that things would turn around,” Alfano said.

“Others are former new-construction builders who don’t yet know that they can’t really do a job for a large percentage less” than competing bidders, he said.

Draus said he’s seeing some companies agree to jobs that unquestionably are money-losers for them, just to keep some cash flowing, sometimes with disastrous results for all.

“[A homeowner] might get a bid of $1,000 from a guy who’s about to go bankrupt or a $3,000 bid from a guy who is competent and stable,” he said.

“I’ve been called in to finish jobs for people who took the $1,000 bid,” he said.

64%

The national average percentage of remodeling costs recouped upon selling a home. That means it costs 36 cents on the dollar to build just about anything for your home.

In the Chicago area, the best returns were not the glamour kitchen/bath projects, but smaller-scale and more utilitarian jobs.

115%

Return on sale for replacing an entry door with a midrange substitute

85.8%

Return on upscale fiber-cement siding replacement

67%

The average payback on a midrange major kitchen remodel

50%

What you’d recoup on the average upscale bathroom remodel

By Mary Umberger

Chicago Tribune

The Wyndham O’Hare at Rosemont will close a week from Friday, leaving about 107 union employees out of work in the new year, according to a union official.

The closing of the 12-floor, 466-room hotel comes at a time of declining revenue in the hotel industry and a struggling convention industry in Chicago.

Unite Here is fighting to delay the Jan. 1 shutdown because the hotel did not give a 60-day notification to the employees under the Worker Adjustment and Retraining Notification Act, said Bill Biggerstaff, a spokesman for Local 450.

The property is independently owned and operated by Kennedy Associates Real Estate Counsel LP, a Seattle-based pension fund adviser, under a franchise agreement with Wyndham Hotels and Resorts.

Jack vanHartesvelt, executive vice president at Kennedy, said the O’Hare area is the third-worst market in America for hotels. The hotel defaulted on a loan at the same time that the bank holding the loan was one of the FBOP Corp. financial institutions seized in October, vanHartesvelt said. The new owner of the loan, U.S. Bank, was not willing to advance the funds needed to keep the hotel open while in default, he added.

The hotel is for sale, he said.

“We really felt like we had no choice,” he said. “This is a really hard thing, especially for those employees here at Christmastime.”

A Wyndham spokeswoman said the hotel chain “just recently became aware” of the owner’s intent to close.

“The comfort and convenience of our customers is our primary concern, and we are diligently working through the details at this time in order to accommodate our guests and limit any inconvenience they may experience,” Wyndham said in a statement.

Eulalia Rivera, a cook at the hotel for 23 years, said employees found out about the hotel closing Friday, in a letter with their paychecks.

“Everybody was crying,” she said.

Rivera said she hopes the hotel will reopen but will be actively looking for another job.

“I’m not going to sit on my butt and do nothing. I’ll go and look for something else,” she said.

The closing of the Wyndham O’Hare was the latest hit to the Chicago area’s hotel industry.

On Monday, the Sheraton Chicago Northwest and CoCo Key Water Resort in Arlington Heights announced it will close Monday.

The Sheraton-branded hotel is owned by WPH Arlington LLC, which said in a statement that the decision followed “many months of operational adjustments, significant negotiations and work with union leadership, negotiations relative to adjustments in real estate taxes and ongoing funding to maintain operations in hopes of some market recovery.”

“Given the state of the economy in the Chicagoland market and the continued falloff of local business travel and corporate markets, it is not economically viable to continue with hotel operations,” the company said.

The owners of the Intercontinental Hotel at O’Hare filed for bankruptcy protection in August amid about $155 million in debt. The court has given the owners until March to come up with a restructuring plan. In the meantime, the hotel has been allowed to conduct business as usual, according to court filings.

William Marks, a hotel industry analyst at JMP Securities, said hotel closings have been rare, as properties generally have managed to remain profitable.

“Despite the (economic) downturn, most hotels are running cash-flow positive,” Marks said. A hotel would need to carry a large amount of debt for it to shut down, he added.

Chicago’s hotel industry is heavily tied to the convention business, Marks said, which also could account for properties closing.

Chicago Tribune

By Julie Wernau

jwernau@tribune.com