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~a~e 4 Dividend ,SSUe 1, 2009
<br />Community developers in Minnesota
<br />face the foreclosure crisis
<br />Continued from page 1
<br />of foreclosures and resulting vacancies.
<br />In the hardest-hit parts of the two
<br />cities-North Minneapolis and St. Paul's
<br />East Side neighborhoods-foreclosures
<br />are dismantling neighborhood revitaliza-
<br />tion efforts by reversing gains in home-
<br />ownership rates and market values. It's
<br />projected that Minnesota will experience
<br />an additional 28,000 foreclosures in
<br />2008,21ikely resulting in further neighbor-
<br />hood deterioration and destabilization
<br />across the state.
<br />During the latter part of 2008, much of
<br />the focus of the recovery from foreclo-
<br />sures and the credit crisis was on large-
<br />scale, national- solutions. Nonetheless, at
<br />the neighborhood level, recovery will
<br />'; come house by house and block by block.
<br />', This article takes a close look at foreclo-
<br />sures in Minnesota, with a focus on North
<br />Minneapolis and the East Side of St. Paul,
<br />and identifies ways communities are
<br />addressing the problem, individually and
<br />collectively.
<br />A troubling trend
<br />Historically, most foreclosures have been
<br />caused by unexpected events that create
<br />economic hardships for homeowners, such
<br />i as job loss, divorce, or catastrophic illness.
<br />Many foreclosures in the current market
<br />have been triggered by broader factors,
<br />such as mortgage rate resets, low or falling
<br />home. equity values, real estate flipping,
<br />and aggressive marketing of high-cost
<br />loans. Neighborhood organizations such as ',
<br />Dayton's Bluff Neighborhood Housing ',
<br />Services (DBNHS) in St. Paul noticed the
<br />last trend a number of years ago and
<br />thought the future looked grim. ',
<br />"When we looked at Home Mortgage
<br />Disclosure Act data, we could see that there
<br />was a lot of subprime lending going on [in
<br />the neighborhood] and we could tell this was
<br />not going to be a good thing. We first noticed
<br />this in 2002; and saw it peak in 2005;' recalls
<br />Jim Erchul, -executive director of DBNHS.
<br />According to Erchul, the surge in subprime
<br />', loans is partly due to the fact that brokers
<br />encouraged some people with prime loans to
<br />Housing partners create national intermediary
<br />to. address property vacancies
<br />On October 4, 2008, four of America's leading housing
<br />and development organizations established a national,
<br />nonprofit intermediary that will coordinate the acquisition
<br />and. transfer of ownership of foreclosed, vacant proper-
<br />ties. The new entity, known as the National Community
<br />Stabilization Trust (NCST), will connect the holders of fore-
<br />closed, vacant, REO~ properties with community-based
<br />organizations that are working to halt the spread of fore-
<br />closures. The ultimate goal of the trust is to promote the
<br />revitalization of affected neighborhoods by facilitating the
<br />rehabilitation and reuse of vacant homes.
<br />The NCST and its sponsors will focus on four activities
<br />• Providing an efficient, cost-effective mechanism for
<br />transferring foreclosed properties from servicers and
<br />investors to local groups;
<br />• Aggregating capital from private and philanthropic
<br />sources and providing financing to support communi-
<br />ty-stabilization efforts;
<br />• Coordinating efforts to develop effective neighbor-
<br />hood-stabilization programs; and
<br />• Serving as a focal point and voice for the housing
<br />industry in the arena of foreclosed-property reuse and
<br />community stabilization.
<br />` Discussions about forming the NCST began in early
<br />2008, when Enterprise Partners, Inc., Housing Partnership
<br />Network, Local Initiatives Support Corporation (LISC),
<br />and NeighborWorks® America formed a partnership to
<br />develop solutions to the problem of home vacancies. The
<br />NCST took shape over the summer as the four partners
<br />convened a task force of loan servicers, performed data
<br />collection to inform the development of business and
<br />financial models, and completed a pilot project to confirm
<br />the viability of the models. The Office of the Comptroller
<br />of the Currency and the Ford and MacArthur Foundations
<br />.provided support for various .stages. of the planning and
<br />development process. Locally, the NCST has been con-
<br />ducting pilot efforts with the Cities of Minneapolis and St.
<br />Paul, Dayton's Bluff Neighborhood Housing Services, the
<br />Greater Metropolitan Housing Corporation, and Twin
<br />Cities LISC.
<br />To learn more, visit vvww.stablecommunities.org/
<br />taxonomy/term/339/all.
<br />REO or real estate dwned, refers to properties that have been taken back through foreclosure and are owned by the lender.
<br />Visit us at www.minneapolisfed.org
<br />switch to subprime as a means of gaining z
<br />equity to pay for other bills. o
<br />"Some people have done this two or a
<br />
<br />three times;' says Erchul. In one instance, .~
<br />a
<br />brokers convinced a family that had no
<br />health insurance to switch to a subprime o
<br />loan in order to gain equity to pay for their a
<br />son's medical bills. "They were. told closing
<br />costs would be $5,000 and they turned out
<br />to be $20,000;' says Erchul. "They would
<br />have been better off just not paying the bill."
<br />The return of blight
<br />Driving through`'North'Minneapolis and
<br />St. Paul's East Side, the sight of vacant, fore-
<br />. closed homes is hard to miss. In some of
<br />the hardest-hit areas, no block is
<br />untouched. The situation affects not only
<br />the families who lose their homes, but also
<br />those who remain in the neighborhood.
<br />Foreclosures and the large number of real
<br />I estate owned, or REO, properties they cre-
<br />ate have contributed to declines in home
<br />values. (REO refers to properties that have
<br />', been taken back through foreclosure and
<br />are owned by the lender.) For example, staff
<br />at DBNHS estimate that values on the East
<br />', Side of St. Paul have dropped almost 40
<br />percent from 2007 to 2008. As a result,
<br />more homeowners in the neighborhood,
<br />j regardless of whether their loans are prime
<br />'; or subprime, may now owe more on their
<br />', .mortgages than their homes are worth. As
<br />more and more homes are left vacant due
<br />', to foreclosure, the return of housing
<br />blight3 may overwhelm some neighbor-
<br />hoods, leading to increased criminal activ-
<br />~' ity and further declines in property values.
<br />However, homeowners are not the only.
<br />'; victims in the foreclosure crisis. Renters
<br />', have also been affected. When a landlord
<br />faces foreclosure, tenants often face evic-
<br />tion. According to estimates from staff
<br />~, members of city agencies, approximately
<br />50-60 percent of .foreclosures in North
<br />', Minneapolis and the East Side of St. Paul
<br />have been on investor-owned properties.
<br />As displaced renters. seek .out vacancies in
<br />'. the remaining supply of rental housing,
<br />they face competition from foreclosed
<br />~, homeowners who have entered the rental
<br />market. As a result, many families have
<br />All photos accompanying this article were taken in North Minneapolis. Pages 1 and 4: Foreclosed, vacant homes of various ages, styles, and states of repair are a common sight. Page 5: The foreclosure crisis in close-up.
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