- The economy may be showing signs of recovery, but these
are times of quiet financial desperation for a growing number of people
in the crescent of suburbs that surround the Twin Cities.
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- Unemployment remains stubbornly and comparatively high
in certain industries, and bankruptcy filings are surging. Home values
continue to increase, but so do the number of people who can no longer
afford to make their mortgage payments.
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- By the end of November, home foreclosure sales in fast-growing
Sherburne County were already up 50 percent over all of 2001. Foreclosures
in Carver County, home to some of the highest household incomes and home
values in the region, have almost tripled this year, and personal bankruptcy
filings are up 26 percent.
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- "We've seen a 50 percent increase in the number
of people coming in for help," said Jan Backlin, a mortgage foreclosure
prevention counselor for Anoka and Washington counties. "A lot of
people are in deep financial distress."
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- Recessions always bring a spike in foreclosures and bankruptcies,
but lawyers, mortgage counselors and others say things are different this
time. Many homeowners have taken advantage of soaring home values and low
interest rates and have borrowed heavily against their homes to pay off
credit cards, meet margin calls in their depleted brokerage accounts, or
buy new plasma-screen televisions. A job loss, drop in income or a sudden,
unexpected expense has left them with little or nothing to fall back on.
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- "People have been encouraged or duped into stripping
all the equity out of their homes," said Liz Ryan Murray, a program
officer with the Home Ownership Center, a consumer advocacy group in St.
Paul.
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- Nationwide, more than 12 of every 1,000 mortgaged homes
were in foreclosure at midyear, up from nine a year earlier, according
to the Mortgage Bankers Association of America. In the three months ended
last June, lenders began foreclosing on four of every 1,000 mortgaged homes,
the highest rate in the 30-plus years the association has been keeping
records.
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- Minnesota's foreclosure rate is still half the national
average, in part because of the number of assistance programs available
to homeowners. But the state's rate is rising too. At midyear 2001, fewer
than four of every 1,000 mortgaged homes were in foreclosure in Minnesota.
Twelve months later, 5.3 of every 1,000 mortgaged homes in Minnesota were
in foreclosure, and five times that many were at least 30 days late on
a mortgage payment.
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- Job losses hurt
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- The economy is the main culprit. Minnesota has seen a
net loss of about 54,000 jobs since March 2001. Unlike previous recessions,
the most recent hit the Twin Cities especially hard as companies such as
ADC Telecommunications and Northwest Airlines slashed their payrolls. State
figures show that the Twin Cities lost almost 30,000 high-paying transportation
and high-tech manufacturing jobs in an 18-month span.
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- "In many ways, the Twin Cities was in the eye of
the storm of this recession," said Jay Mousa, director of research
for the Minnesota Department of Economic Security.
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- The bulk of foreclosures is still in Hennepin and Ramsey
counties, but the total is up less than 2 percent so far this year. Foreclosure
sales in Scott County through November, meanwhile, were up 55 percent over
all of 2001. Hennepin and Ramsey counties also had the smallest increase
in personal bankruptcy rates during the three months ended Sept. 30.
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- Nationwide, foreclosure rates are higher among low-and
moderate-income families with imperfect credit and high-interest loans.
But that is not the case in the newer, wealthier Twin Cities suburbs, where
the price of a house can easily top $200,000. Recent foreclosure notices
include a $3 million Wayzata house, a $250,000 home in Maple Grove and
a $400,000 home in Chanhassen.
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- Too much house
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- In Carver County, the median household income is $65,540
and the average sale price of a house in 2002 is up 19 percent, to $265,448.
"Most of our clients have conventional, low-interest mortgages, but
they've suddenly found themselves with more house than they can afford,"
said Denise Maki, a housing counselor with the Carver County Housing and
Redevelopment Authority.
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- One Waconia couple fell behind on their $170,000 mortgage
after the salary of the husband, who works in the travel industry, was
reduced after Sept. 11, 2001. "We thought it would be increased in
2002, but it wasn't," said the wife, who spoke on the condition that
she not be identified. Their home has been scheduled for a Jan. 3 foreclosure
auction, although they hope to negotiate a settlement with the lender before
then.
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- Most lenders want to avoid foreclosure because they ultimately
lose money on the property, said Larry Wilford, a St. Paul attorney who
represents about two dozen mortgage lenders. Many private mortgage insurers
also require lenders to develop workout plans for missed payments.
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- For government-insured FHA or VA mortgages, a minority
of the loans issued in Minnesota, the Department of Housing and Urban development
will pay up to a year of missed principal, interest and tax payments. In
those cases, the homeowner signs a note promising to repay the amount when
they refinance or sell the house, said Anita Olson, HUD's chief of customer
service in Minnesota.
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- Help available
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- Unlike many states, Minnesota also has its own network
of organizations to assist strapped homeowners.
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- The Minnesota Mortgage Foreclosure Prevention Association
trains housing counselors throughout the state, and their organizations
receive state funding that can be used, usually in the form of zero-percent-interest
loans, by homeowners to catch up on missed mortgage payments.
-
- Financial assistance is limited, however, to $5,500 per
family, and the pinched state budget means many organizations have less
money to dole out this year. Anoka County Community Action, for example,
has seen its budget reduced 16 percent, to $50,000.
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- But even if they wanted to, housing counselors said they
could not begin to meet the financial demands of some homeowners.
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- "In some of these cases we're seeing people come
in who owe as much as $12,000" in back mortgage payments, said Backlin,
the foreclosure-prevention counselor.
-
- Some people have to sell their home to avert foreclosure,
but many are reluctant to sell. Many have so much debt on their house that
they would not get enough equity back to buy another one. The tight and
expensive apartment market makes some fear that their family will end up
homeless.
-
- The Home Ownership Center, which tracks mortgage assistance
efforts in Minneapolis and St. Paul, said its clients are, on average,
4.8 months behind on their mortgage payments. The average monthly payment
rose to $795 through the first six months of 2002, from $619 in 2001. "Higher
home values explains some of that increase, but it also reflects an increase
in the number of people with second mortgages," Murray said.
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- A Chanhassen homeowner, who asked that he not be identified
because he did not want his employer or family to know about his financial
condition, lost his $50,000-a-year telecommunications job in February 1999
-- on the same day that he closed on a $92,000 townhouse. In the next 27
months he landed but lost three more jobs in telecommunications sales.
He took out a $25,000 second mortgage, at 7 percent, to get current on
his first, but additional long bouts of unemployment left him three months
behind on his $595-a-month first mortgage and on his $110 monthly townhouse
association fees. When he tried to refinance again last summer, lenders
turned him down, and foreclosure seemed inevitable.
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- "I remember sitting at work one day, tears in my
eyes, thinking I had no choice but to declare bankruptcy," he said.
A last-minute, $4,200 loan from Carver County HRA helped him hold on to
his house.
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- A growing number of homeowners are taking the bankruptcy
route. Business is booming for Jack Prescott, a New Brighton attorney who
specializes in personal bankruptcy filings. Most of Prescott's clients
file a Chapter 7 petition, which is a liquidation of all debts, including
the mortgage, although the lender can then foreclose. But a growing number
of his clients are filing Chapter 13 petitions in hopes of holding on to
their homes. A Chapter 13 filing halts the foreclosure process and forces
the lender to negotiate a repayment plan for past-due mortgage payments.
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- "I do about thirty Chapter 13s a month, and nearly
all of those are to save a house," Prescott said.
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- More and more homeowners, however, have little choice
but to surrender, at least temporarily, their part of the American dream.
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- At 10 a.m. on a recent Friday, Sgt. Julie Boden stepped
into the lobby of the Carver County Sheriff's Office, opened a manila folder
and began the auction for a Watertown house. The 27-year-old owner, who
bought the house four years ago, wasn't there, but a representative for
the lender was.
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- When Boden finished reading the foreclosure notice, a
representative for the lender presented a check for more than $94,000,
the remaining balance on the mortgage. The owner will have six months to
come up with a similar amount or be evicted.
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- Boden, who took over the foreclosure auctions in March
after 18 years in a patrol car, said she was stunned by the number of county
residents who were losing their homes and filing for bankruptcy. "I
had no idea this was going on," she said.
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- -- Eric Wieffering is at ewieffering@startribune.com.
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