Foreclosures On the Rise in Minnesota
More than 4,200 Twin Cities-area homeowners have lost their homes to foreclosure so far this year. Compared to other cities, this is a low figure. However, for the Twin Cities-area, this a very high figure, near double last year's figure. With the help of foreclosure.com, a national data service, the St. Paul Pioneer Press has attempted to show that the concentrations of foreclosures over the last year and a half are threatening communities such as North Minneapolis, St. Paul's East Side, Brooklyn Park, Cottage Grove and Apple Valley, according to foreclosure.com, a national data service.
According to the Pioneer Press, experts worry that rising interest rates and declining home values will drive many Minnesota homes into foreclosure.
The hardest hit areas are lower-income, minority neighborhoods in core cities, especially those comprised of mostly African-Americans.
However, foreclosures are also happening in Dakota County and Scott County, including expensive homes in the Wilds, a planned community in Prior Lake built around a golf course.
Some of the reasons cited for such an exponential increase in foreclosures in the area are: home values that decline while interest rates rise, risky mortgages such as interest-only or negative amortization, aggressive marketing of high-cost, sub-prime mortgages to people with shaky credit, excessive refinancing, mortgage fraud, adjustable-rate mortgage resetting, and buyers who do not fully understand their loans. According to local experts, adjustable-rate mortgages, or ARMs may be the most common cause of foreclosures. At least 145,000 Minnesota homeowners have ARMs, according to LoanPerformance.
Two University of Minnesota studies show heavy concentrations of sub-prime loans in the Twin Cities' most heavily minority neighborhoods, which are also heavily hit 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 sub-prime mortgage than whites, and Latinos are 13 percent more likely. The second study, 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 area were 164 percent more likely than whites to get a sub-prime loan, and people of color in general 78 percent more likely.
Keenan Raverty, president of the Mortgage Association of Minnesota, said that the higher concentrations of foreclosures in core city neighborhoods are likely there because many low-income borrowers took out loans with little or no down payment. Accordingly, when a housing market starts to decline, such borrowers can quickly owe more on the house than the house is worth and have more difficulty selling it to avoid foreclosure.
According to Eric Ewald, managing director of the Mortgage Association of Minnesota, the data used in the two University of Minnesota studies is skewed, because the Housing and Mortgage Disclosure Act information drawn from lenders does not include all the risk factors considered in home loans, such as credit scores, which could explain why people are getting more expensive sub-prime loans.
St. Paul city planner Tony Schertler speculates foreclosures show up in core city neighborhoods such as Jordan and Dayton's Bluff first because those homeowners have less financial cushion when a water heater breaks or other trouble hits.
However, according to Autumn Lubin, a foreclosure-prevention specialist, home losses have a way of spreading. For example, 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, there can be a snowball effect that is very hard to stop.