The Pioneer Press is ran a couple of stories on the increasing rate of foreclosures and the impact that has had.
http://www.twincities.com/mld/twincities/news/local/15587100.htm
These homes were lost
and that's just the beginning
As the housing boom ends, experts worry that rising interest rates and slowing home values will push thousands more Minnesotans out of their houses.
BY JENNIFER BJORHUS and MARYJO SYLWESTER
Pioneer Press
The little stucco box for sale at 2006 Nortonia in St. Paul is just like hundreds on the crowded housing market. Except that its owner never wanted to sell.
Randy Schlenner, a 45-year-old single dad, bought the modest house on the East Side six years ago. When bills piled up for a new furnace and a new transmission on his rusted 1988 Chevy, he went through bankruptcy and refinanced his mortgage twice to try to hang onto the house.
It all backfired. His payments ballooned to $1,300, more than he could manage on his $36,000 salary as an installation foreman for an office-products company. The house went back to the bank in July.
Schlenner still can't quite believe it. "I fight every day to keep a nice house for my son," he said.
But soon, the Schlenners will move on, like the more than 4,200 Twin Cities-area homeowners who have lost their homes to foreclosure so far this year. That's a low figure, compared with other cities, but a steep increase for the seven-county area, which is on pace to double last year's record number of foreclosures.
In this, the first part of an occasional series, the Pioneer Press sheds light on what has been largely an invisible phenomenon. With the help of Foreclosure.com, a national data service, we can show, for the first time, the concentrations of foreclosures over the last year and a half that are threatening the fabric of communities in places like North Minneapolis and St. Paul's East Side and the scattered clusters of home losses popping up in places like Brooklyn Park, Cottage Grove and Apple Valley.
As the housing boom draws to a close, experts worry that the combination of rising interest rates and slowing home values will push thousands more Minnesotans out of their homes.
"We haven't seen anything yet," said Lowell Yost, executive director of the Minnesota Home Ownership Center, the South St. Paul nonprofit.
Hardest hit, as the map shows, are lower-income, minority neighborhoods in the core cities. That is a pattern that University of Minnesota urban housing professor Jeff Crump and Macalester College geography professor Laura Smith first showed in reports based on 2002 data. The foreclosures correspond most closely to census tracts with the highest concentrations of African-Americans, leading the authors to conclude that African-Americans may be suffering the heaviest impact.
Four years later, those tight clusters have exploded into blobs a particularly disturbing development given that home ownership is already so low among African-Americans in Minnesota. At about 75 percent, the state boasts one of the country's highest overall rates of homeownership. The rate for African-Americans, however, is a dismal 32 percent.
But the problem is not limited to the core cities. There are signs of trouble in Dakota County, where foreclosure counselors say job and pay cuts at Northwest Airlines have triggered home losses. In Scott County, a sheriff's deputy said they are serving foreclosure notices on expensive homes in the Wilds, a planned community in Prior Lake built around a championship golf course.
"We're starting to see a lot in the $400,000, $500,000, $600,000 range," said Deputy Duane Jirik. "It's unbelievable."
The surge of home losses has shocked city and state officials, startling some veteran city planners and foreclosure-prevention pros. Community activists say pockets of foreclosures in the core cities have reached crisis proportions, threatening years of community development. In St. Paul, it's left city code-enforcement workers struggling to keep tabs on a mushrooming crop of empty properties. More than 800 houses in St. Paul are now officially vacant, double last year's list. The number could be much larger, since vacant homes get on the list only when someone complains about them.
EXPLANATIONS
What's happening? Job loss, major illness, big debts and divorce remain key triggers for foreclosures. Local experts describe a toxic stew of factors behind the current surge:
Home values that are flattening or declining while interest rates rise a double-whammy that leaves some people with more loan than house and makes it harder for homeowners in trouble to sell their homes to escape foreclosure.
The abundance of risky mortgages such as interest-only or negative-amortization loans, where buyers do not even pay the interest due.
Aggressive marketing of high-cost, subprime mortgages, the higher-interest-rate mortgages made to people with less-than-perfect credit.
Excessive home refinancing, often to consolidate debt.
Mortgage fraud, such as falsifying income or inflating house appraisals.
Unsophisticated buyers who don't fully understand their loans.
Payment shock from adjustable-rate mortgages resetting.
Of these, adjustable-rate mortgages, or ARMs, may be the most common denominator in today's foreclosure boom, local experts say.
ARMs carry low teaser interest rates for an initial period, typically the first two years. After that, the interest rate on the loan starts adjusting. Depending on the type of ARM, the interest rate can jump 2 percentage points to as much as 5 percentage points a year. If a $250,000 ARM resets from 4 percent to 6 percent, the monthly payment jumps from $1,094 to $1,499.
"That's been the tipping point for a lot of people," said foreclosure attorney Lawrence Zielke of Shapiro, Nordmeyer & Zielke in Edina.
A wave of ARM resets is upon us. Nationally, $500 billion worth of ARMs will reset this year, affecting millions of families, according to Freddie Mac and First American LoanPerformance, a San Francisco mortgage tracker. Next year the projected peak of the wave nearly $700 billion worth of mortgages will reset, followed by just under $600 billion in ARMs in 2008.
At least 145,000 Minnesota homeowners have ARMs, according to LoanPerformance.
The prospect of all those jumping mortgage payments worries Autumn Lubin, president of the Minnesota Mortgage Foreclosure Prevention Association. Too many families, Lubin said, didn't fully understand the consequences of buying or refinancing with risky mortgages such as interest-only ARMs. Interest-only ARMs require payments on just a loan's interest for a time. When the principal payments kick in, the monthly bill can double and turn a home into a House of Horrors.
FRAUD AND RACE
Looking at the Pioneer Press map, Lubin wondered aloud how many more foreclosure dots are to come.
"There's a whole lot more families in between those dots that don't know they're in trouble," she said.
Some wind up across the desk from Dave Mootz.
Mootz counsels struggling homeowners for the Anoka County Community Action Program in Blaine, handling calls from Anoka and Washington counties. In Middle America, he said, many of his clients are struggling with resetting ARMs.
"This is pretty monumental, what we're going through right now," Mootz said.
At the Northside Residents Redevelopment Council in Minneapolis, Karen Johnson works at ground zero of the metro area's foreclosure damage the dense cluster of dots in North Minneapolis that cover the Jordan, Willard-Hay, McKinley and Hawthorne neighborhoods. The Twin Cities' historically lower-income neighborhoods have long struggled with more foreclosures, partly because residents are simply poorer and the housing stock older and more expensive to repair.
But the current flood of foreclosures is coming on harder and faster, Johnson and others say. Resetting ARMs are a major factor, but so are unfair lending and clear-cut fraud, Johnson said. She's tracking a string of problem mortgages based on falsified incomes. Lenders have preyed on financially vulnerable people, taking advantage of urgent need for debt relief, financial naivetι and the recent fast rise in property values, said Rony Davis, executive director of Neighborhood Housing Services of Minneapolis, in the Near North neighborhood.
Davis is angry. She's worked for decades to help fix up North Minneapolis' old homes and get a first generation of homebuyers into them. To her, the burgeoning foreclosures are a slide backward.
"It's happening so fast. It just makes me sick," Davis said. "I have put in 27 years here. We and others have done wonderful work here. Only to have the rug pulled out like this."
Johnson and Davis both point the finger at lenders and mortgage brokers they say have aggressively marketed exotic and expensive subprime mortgage loans higher-interest-rate loans made to people with tarnished credit.
Two University of Minnesota studies show heavy concentrations of subprime loans in the Twin Cities' most heavily minority neighborhoods, the same neighborhoods being hit hardest with foreclosure. The first, by Crump, the urban housing professor, estimated that African-Americans in the Twin Cities are 34 percent more likely to receive a subprime mortgage than whites, and Latinos are 13 percent more likely. The second, by Eric Myott at the university's Institute on Race & Poverty, used a different formula and more recent data, and concluded that African-Americans in the Twin Cities were 164 percent more likely than whites to get a subprime loan, and that people of color in general were 78 percent more likely.
So are lenders targeting minority neighborhoods for expensive loans? "That's the central research question," Crump said. "Look at the maps and decide for yourself."
CHAIN REACTION
Lenders say it's not that simple. Keenan Raverty, president of the Mortgage Association of Minnesota, said he suspects the higher concentrations of foreclosures in core city neighborhoods are there because so many low-income people took out loans with little or no down payment. When a housing market starts to decline, they can quickly owe more on the house than the house is worth and have more difficulty selling it to avoid foreclosure. They probably also are more likely to deal with very local brokers who don't have the best mortgage products to offer, he said.
So why do minorities appear to be paying more for their loans than white people pay? That's a hotly debated question that the Federal Reserve is examining. The data used in the two University of Minnesota studies is skewed, said Eric Ewald, managing director of the Mortgage Association of Minnesota, because the Housing and Mortgage Disclosure Act information drawn from lenders doesn't include all the risk factors considered in home loans, such as credit scores, which could explain why people are getting more expensive subprime loans.
"If there's some kind of systematic targeting, it doesn't make any sense," Raverty said. "Banks lose money on foreclosures," an average of $50,000 each, by one industry estimate.
St. Paul city planner Tony Schertler speculates that the core city neighborhoods such as Jordan and Dayton's Bluff are a canary in a coal mine. Foreclosures show up there first because those homeowners, like Randy Schlenner, simply have less financial cushion when a water heater breaks or other trouble hits.
But as Lubin, the foreclosure-prevention specialist, described, home losses have a way of spreading. A neighborhood full of for-sale signs or boarded-up homes has a hard time attracting investors and newcomers, who might fear property values will fall. As one neighborhood stumbles, the next one out feels the ripples, and property values can dip there, too.
"Once this starts, this is a snowball that's really hard to stop," Lubin said.
Is Your Home at Risk?
If you are having problems making your house payments and need advice, contact the Homeownership Center of Minnesota at 651-659-9336 or go to www.hocmn.org and click on "foreclosure prevention." Or go to DontBorrowTroublemn.org or call 612-312-2020. You can also go to the Minnesota Mortgage Foreclosure Prevention Association's Web site at www.mmfpa.org, click on the "Facing Foreclosure?" box and then click on your county.
http://www.twincities.com/mld/twincities/news/15601073.htm
If nobody's home, trouble comes calling
St. Paul's spike in vacancies threatens neighborhoods
BY JASON HOPPIN and MARYJO SYLWESTER
Pioneer Press
Five homes sit empty at an intersection in St. Paul's Railroad Island neighborhood foreboding, boarded-up omens of a community teetering on the brink.
Broken glass glitters on a stretch of sidewalk in front of the East Side homes at Bradley Street and Minnehaha Avenue, near the geographic heart of the city. A Dumpster in a driveway overflows with what once were a family's belongings an old couch, some chairs, a child's toy.
In scattered clusters, the scene is repeated across St. Paul, especially in the city's poorer neighborhoods, where there are many rental properties. In the past five years, the number of vacant St. Paul buildings has more than doubled, an alarming trend that, in some areas, threatens to unravel years of rising property values.
The reasons are many and the solutions few. A softening housing market, questionable lending practices and neighborhood crime all have contributed to the problem, while federal funding for rehabilitating urban cores has dwindled.
For people who invested in the neighborhoods, who bought homes and spent their hard-earned money fixing them up, the trend is unsettling.
"My immediate concern is the two houses across the street. They've been vacant for almost a year," said Elmer Heutmaker, 39, a Dayton's Bluff resident for 18 months, adding that one of the homes has been broken into. "My wife and I just hope and pray that someone decent moves in."
The situation has caught the attention of the mayor and the City Council, which will hear about the extent of the problem at its Wednesday meeting.
The burning question is what to do about the vacancies and foreclosures. Absent a huge rebound in the real estate market, the problem seems destined to linger. And the longer buildings remain vacant, the harder they are to keep from becoming blight on the neighborhood.
"It decreases the values of the surrounding homes, and it creates a sense of abandonment," said Mike Anderson, executive director of the East Side Neighborhood Development Co., one of a handful of St. Paul nonprofits that piece together public and private funding to revitalize neighborhoods.
A DOWNWARD SPIRAL
St. Paul's 766 listed vacancies put downward pressure on all aspects of their neighborhoods, from home values to the public's perception of its schools. When that happens, families become more reluctant to move in, hastening the downward spiral.
The vacancies disproportionately affect poor neighborhoods and those with a high number of minorities. Three-quarters are in neighborhoods where incomes are less than the citywide average, according to a Pioneer Press analysis of city records. Barely a quarter of St. Paul neighborhoods have predominantly minority populations, but those areas account for 43 percent of the vacancies.
Fueling the phenomenon is an escalating number of foreclosures that appears to be partly the result of nontraditional home financing, such as high-risk loans and adjustable-rate mortgages, which became popular during the go-go days of the real estate boom.
And there is widespread speculation that many investors in rental properties simply got in over their heads.
"They used collateral on this one to buy that one," City Council President Kathy Lantry said. "And when they start falling apart, they lose them all."
But there's evidence that not just first-time homebuyers and investors are losing their houses. According to City Council researchers, 46 percent of citywide foreclosures came after a homeowner took out a home equity loan.
The city maintains a vacant-building registry, but it lists only properties reported by owners or that draw neighborhood complaints, so there likely are hundreds more than 766 empty homes. Across from Heutmaker's Reaney Street house, for example, neither of the two vacant buildings is currently on the city's registry.
With families forced out and houses reclaimed by financial institutions, getting vacant houses rehabilitated and back on the market is difficult. Critics say banks particularly those with no local ties are reluctant to sell the foreclosed properties at a loss.
"The real question is: How long will the banks sit on these properties?" said Chuck Repke, head of the Northeast Neighborhoods Development Corp. "What price will the banks ask for, and what will the city's response be? That's the problem of some mega-international bank owning the home. It doesn't mean a thing to them.
It's just a line on a spreadsheet."
Vacancies are concentrated in the North End, Payne-Phalen, Frogtown and distressingly for many who worked hard to turn the neighborhood around Dayton's Bluff. But they are up, too, in more stable neighborhoods, such as the greater East Side and Highland Park.
The problem wears on activists in the Dayton's Bluff neighborhood, where much energy has been spent polishing the area's reputation. Stately, turn-of-the-century homes rivaling anything on Summit Avenue can now be found around many corners there. But they are abutted, increasingly, by vacant homes that are often boarded up.
"It's disheartening to see all these vacant houses again," admits Jim Erchul, executive director of Dayton's Bluff Neighborhood Housing Services.
FEWER FEDERAL FUNDS
The question is, what do you do about it?
On Wednesday, the St. Paul City Council will hear a report outlining the scope of the problem, and Mayor Chris Coleman's administration is trying a broad approach to finding solutions. Council Member Dan Bostrom, whose East Side ward has more than its share of vacant buildings, says the city should encourage people to invest in their neighborhoods.
"We've got to come up with a plan to get owner-occupied duplexes," Bostrom said. "Get home ownership back in those neighborhoods."
Ann Mulholland, Coleman's chief of staff, said neighborhood vitality is City Hall's top priority.
"Mayor Coleman feels that our neighborhood character and culture is what makes St. Paul St. Paul," she said. "We are really turning our attention to this in a focused and concentrated way."
In conversations with several council members and members of the Coleman administration, there seems to be a unity of purpose and an understanding that, if unchecked, the problem could tear at the fabric of the city.
"We're not going to take a year to look at this," said Cecile Bedore, the city's director of planning and economic development. "We have to make sure we don't develop an 80-page report and stick it on a shelf."
But city government doesn't have as many revitalization tools as it once did.
Neighborhood development corporations, which are funded by local, state and federal grants, often take a leading role in revitalizing neighborhoods. But there is less money for redevelopment today than five years ago, when the number of vacant buildings was low.
St. Paul funding from Community Development Block Grants and the HOME program, the two main sources of federal urban-renewal funds, declined from $12.8 million in 2001 to $11.4 million in 2005 an 11 percent drop that looms larger when the increasing costs of redevelopment are factored in.
St. Paul which received $18.8 million in 1975, the first year of the block grant program is not alone. In recent years, funding nationwide has been cut from $4.3 billion in 2002 to $3.7 billion in 2006.
"It's a nationwide problem," said Michael Wallace, senior legislative counsel for the Washington, D.C.-based National League of Cities.
President Bush's administration wants to tweak the formulas used to award grants to better serve communities in need, said Brian Sullivan, a spokesman for the U.S. Department of Housing and Urban Development.
"In the budget climate we're in, if you can't demonstrate results, you're going to be a target," Sullivan said, explaining why the program has been cut. "People here at HUD still love (the program). We all love it."
SPREADING CANCER
Surprisingly, not everyone's unhappy with a boarded-up home. A Pioneer Press analysis seven years ago found that crime associated with many buildings dropped once they became vacant.
"Some of the people who are living next to those boarded-up houses will say it's better today than it was when the miscreants were living there," Bostrom said.
But the problems associated with vacant homes only worsen with time. Youths commonly break in, as do vandals looking to gut the homes of their copper and lead pipes to resell, especially now that the market for recycled metals is booming.
Homes that sit empty often fall into disrepair, dragging down property values. A 1995 study by the Family Housing Fund of Minneapolis and St. Paul found that homes adjacent to and directly across from a vacancy drop $10,000 in value.
Mark Johnson has seen the effect firsthand. A Realtor with Edina Realty, Johnson is trying to sell a North End house at 9 E. Jessamine St. for an out-of-state investor. The small, single-story home, surrounded by vacancies, was listed last year for almost $130,000. It's now offered for less than $95,000.
"The neighborhood does matter. It's location, location, location," Johnson said.
With four registered vacant buildings nearby and an empty lot where the city recently razed a nuisance house across the street, the home is a tough sell. Johnson said crime in the area also is a problem, and that the reports he gets from agents working with potential buyers aren't good.
"They say, 'Clients drove by, didn't feel comfortable, didn't get out of car, left,' " Johnson said.
The city spends $700,000 a year to maintain unkempt properties, including vacancies, as part of an aggressive monitoring campaign. The city mows the lawn, picks up garbage and boards up windows if needed. The cost for the work is added to the home's tax bill, and most of the money is eventually recouped once the owner pays the taxes or the home is sold.
But laws intended to protect homebuyers can stall the turnaround of a vacant property. After a property goes into foreclosure, for example, the owner often has six months or more to take it back. This so-called redemption period is among the longest in the nation.
"Let's say the city wants to prevent a vacant property from sitting empty for X amount of time," City Council President Lantry said. "The fact is, if the mortgage company isn't past the redemption period, it's gotta sit there."
RELUCTANT TO RAZE
The city does have available some extreme measures. If a home deteriorates enough, the city has the power to demolish it. But that only creates more problems.
Not only does razing create a "gap-toothed" streetscape, but the action also is fraught with symbolism. When a home at 14 E. Jessamine St. was leveled earlier this year, picketers accused the city of trampling on property rights.
Furthermore, owners of property where a home has been razed sometimes quit paying their taxes. Then a lot can sit as long as five years before it's forfeited back to the government.
Vacant homes have long been the source of angst, spawning litigation between the city and HUD, which once owned hundreds of homes across the Twin Cities. Activists have squatted in vacant homes to focus attention on homelessness, arguing that some could be used to shelter the needy. And they can harbor crime in 1999, an 8-year-old girl was raped in a vacant Frogtown home.
So, what to do?
For one thing, Lantry would like the city to open a dialogue with the banks.
"They'd better come to the table to see if there's some strategy we can employ to get them out from holding all these homes.
They took a chance, they overextended, they compromised their underwriting policies and procedures," Lantry said. "They took a chance because values were increasing so rapidly that they could recoup their money if people walked away.
"That's not happening anymore."
Jason Hoppin can be reached at jhoppin@pioneerpress.com or 651- 292-1892.
Next steps in St. Paul
St. Paul is following two tracks to attack the problem of emptying neighborhoods:
The City Council will officially hear a report Wednesday that examines the roots of foreclosures and vacancies. That report will be the basis for policy decisions, which could include such steps as seeking state legislation or adding staff to the city's licensing department, which oversees vacant buildings.
The report likely will align with a fast-track effort by Mayor Chris Coleman's administration to examine the broader scope of the problem, including poverty, education disparities and other socioeconomic causes. The Department of Planning and Economic Development is spearheading the effort and is meeting with City Hall department heads and concerned community organizations. PED Director Cecile Bedore said the mayor may convene a community development cabinet to make sure the recommendations for solving neighborhood disinvestment are implemented.
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