Rise in home foreclosures alarms city officials

Rise in home foreclosures alarms city officials
Associated Press
Published Monday, November 27, 2006

MINNEAPOLIS – Home foreclosures in Minneapolis, St. Paul and other communities around the state are rising at a rate that is beginning to alarm some officials worried about destabilized neighborhoods.

The main cause appears to be homeowners who plunged into the housing boom of recent years and are now struggling with mortgages they can’t afford, and who in some cases may have fallen victim to risky financing arrangements.

“There are more and more people who have purchased houses using mortgage products that they didn’t fully understand,” said Cliff Morse, a mortgage financial planner with American Home Mortgage in Chaska. “Now people are falling backwards.”

In St. Paul, foreclosures are on a pace this year to be three times higher than they were in 2003. In Minneapolis, they’re up by about 79 percent compared with last year. And in Dakota County, there were more foreclosures by Sept. 1 than in all of 2005.

Minneapolis Mayor R.T. Rybak said foreclosures are now the city’s top housing issue. The city is looking into a program to identify at-risk homeowners before they fall victim to unscrupulous lenders.

“It’s on some level the underside of the refinancing boom,” Rybak said, “But it also has deeper aspects, including financial literacy and risky lenders who sometimes don’t have the best intentions.”

With the housing boom now in retreat, stagnant sale prices are adding to the difficulty, making it tough for homeowners in crisis to cash out.

The problem in Minnesota is not as severe as in other parts of the country where job losses are higher and incomes are stagnant. In October, Minnesota ranked 34th among states in the number of properties entering foreclosure, according to RealtyTrac, which keeps a national database.

Even in Minneapolis and St. Paul, where the problem is most aggravated, foreclosures remain a small fraction of the total number of mortgages. But city leaders say concentrations of foreclosed homes are hitting certain neighborhoods hardest.

As of Nov. 3, Minneapolis saw 1,353 foreclosures in 2006, according to city data. There were 870 total in 2005, and 414 in 2002.

But it’s low-income neighborhoods that are taking the brunt, particularly on the city’s north side. Newly boarded-up and vacant houses are being stripped of copper pipes and other valuables that can be carried out, creating new blight in areas already struggling with crime and poverty.

“I don’t think there’s any way to explain adequately how devastating one or more vacant houses on a block is to a community,” said Roberta Englund, a north side neighborhood leader.

Another peril is that foreclosed houses will fall into the hands of absentee owners who don’t have the same interest in keeping them up as do owner-occupants.

The increase in foreclosures is similarly steep in St. Paul, which saw 705 by July 1 after only 623 in all of 2005. The problem is most apparent in economically challenged areas like Frogtown, North End, Payne-Phalen and Dayton’s Bluff.

City Council President Kathy Lantry said the city will strengthen its counseling programs for home buyers and residents with burdensome mortgages.



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