In St. Paul, foreclosures are concentrated most heavily in Payne-Phalen, Thomas-Dale, North End and Dayton's Bluff. These are generally poorer, very racially diverse neighborhoods that are among those with disproportionate concentrations of high interest rate subprime mortgages, two University of Minnesota studies have shown.
The hot zones in Minneapolis remain the Jordan neighborhood in North Minneapolis and Central in South Minneapolis.
In the Jordan area of North Minneapolis, banks are repossessing homes at a rate of about 200 per half-square mile — the highest rate in the Twin Cities and significantly higher than the year-ago rate of about 130. In part of St. Paul's Payne-Phalen area, homes are going back to the bank at a rate of about 130 homes per half-square mile, up from about 50 a year ago.
About half the foreclosures in Hennepin County are investor-owned, according to Carolyn Olson, president of the Greater Metropolitan Housing Corp. That number rises as high as 70 percent in pockets of North Minneapolis, she said.
"A lot of people looked at late-night TV, thought they could be an investor and bought," said Olson.
Certainly, the density of older housing stock in the Twin Cities' older core neighborhoods helps drive up foreclosure rates. However, foreclosure rates per household are significantly higher in those neighborhoods too.
To Autumn Lubin, a national foreclosure specialist and head of Yellow Wood Consulting in Farmington, the maps mirror what's happening across the country.
"We have one of the best foreclosure intervention systems in the country here in Minnesota, and even with established resources we have been unable to stem the tide," Lubin said. "What these maps illustrate loudly is that the while the poor and minority neighborhoods are at the eye of the foreclosure hurricane, no community is spared, regardless of its home values, income levels or racial composition. Foreclosure is not just a "poor" problem. It is an American problem."
The maps illustrate how the intensity has spread beyond the core hot zones to more low-to-moderate income areas such as Brooklyn Park, St. Paul's West Side and the Cottage Grove area. Those areas could start seeing broader neighborhood problems, such as decreasing property values, that have affected the hot zones, said the Federal Reserve's Todd.
The situation isn't any better outside the metro area, says Warren Hanson, head of the Greater Minnesota Housing Fund. Greater Minnesota is being hit by "an invisible epidemic" of foreclosures, he says. They're more scattered than in the metro area and so less devastating to entire communities, but they are still a big problem.
The tab for the scourge mounts. Wall Street's subprime wipeout aside, fallout in the next few years could cost Minnesota $1.64 billion, according to a recent report by the Joint Economic Committee of Congress. The report projects that about 18 percent of subprime mortgages in the country will slide into foreclosure between now and the end of 2009. In Minnesota, that's nearly 28,000 more homes that will go under. The tab includes the spillover effect of foreclosures depressing nearby home values, as well as counties and cities losing property tax revenue. Studies suggest each single-family house that is foreclosed on lowers property values within one-eighth of a mile by at least 0.9 percent.
State economist Tom Stinson insists Minnesota's economy can handle the $1.64 billion hit, though it certainly won't be painless. Foreclosures are tragedies for individual families, he said, but the overall decline in housing values accompanying the housing recession will likely have a bigger economic impact. That's little solace for families, including renters, being uprooted and homeowners watching their credit histories tank.
Foreclosures are contributing to a bad feedback cycle. They push more houses onto a flooded market, contributing to downward pressure on property values that in turn helps drive more foreclosures.
"I dumped 100 pieces of property in the market last month," said Barbara May, a Roseville bankruptcy attorney and a director of the National Association of Consumer Bankruptcy Attorneys. "I think I'm bankrupting all of Maplewood right now."
May was clearly joking; however, the maps do indicate foreclosures have intensified in Maplewood.
By now, the foreclosure scourge is firmly on everyone's radar. The Foreclosure Prevention Funders Council, a group of Twin Cities housing professionals formed last winter, is trying to address the situation. The state Department of Commerce has stepped up investigations of real estate and mortgage fraud. Gov. Tim Pawlenty recently announced an additional $1 million to beef up foreclosure prevention counseling across the state.
Nationally, banking regulators and the Bush administration have called on mortgage lenders and servicers to work with distressed borrowers — a few even calling on them to freeze interest rates on adjustable rate mortgages to prevent dangerously higher rates from kicking in. Lawmakers are working on bills to offer some relief to homeowners. The U.S. House recently passed an anti-predatory mortgage-lending bill very similar to the tough new Minnesota law the industry is grappling with.
"This is an issue we need to be making high on the priority list," said the Federal Reserve's Todd. "This is a very important problem for the area."
Jennifer Bjorhus can be reached at jbjorhus@pioneerpress.com or 651-228-2146.
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