Foreclosures on the rise again
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Housing data released this week showed an uptick in foreclosures for the Twin Cities. That's what housing experts have been predicting, and they say the situation is not likely to improve without more federal help.
Like thousands of other Minnesotans, homeowner Jesse Adams and his wife have had their share of trouble. Over the past few years, the Brooklyn Center family dealt with expensive health problems and unemployment after Adams' wife lost her job. They soon fell behind on their house payments.
"I'd fall a month behind, and then sometimes I'd catch up, or sometimes I'd end up having to pay at the middle of the second month or whatever it was, and I was chronically in that state," he said.
Adams says their mortgage company turned them down for a permanent loan modification. He and his wife almost lost their house to foreclosure -- they managed to rescue it just days before the sheriff's sale by borrowing from their retirement savings.
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Adams' wife is back at work and things are more stable. But Adams says after another setback, they're struggling again.
"I was doing really, really, really good at it until our dryer basically burned up and we had to replace that," Adams said. "So I'm one month behind right now, but I've got the payment as of Friday."
This story is familiar to the thousands of Minnesotans at risk of losing their homes.
"What's happening is really bad, but it's not really news."
The number of people behind on their mortgages rose 17 percent between the first half of 2009 and the first half of this year.
Minnesota is faring better than some states. Still, numbers released this week by the Minnesota Home Ownership Center, based on sheriff's sale data from all Minnesota counties, show there were more than 13,000 foreclosures at the end of the second quarter this year. That's up from just over 11,000 during the same period last year.
If foreclosures continue at this rate, the Minnesota Home Ownership Center predicts the state could approach the levels of 2008 -- the year with the highest number of foreclosures on record. That year, more than 26,000 Minnesota homeowners lost their homes.
"What's happening is really bad, but it's not really news," said University of Minnesota Law professor Prentiss Cox.
The housing market is stuck in a downward cycle that is driving up foreclosure numbers and driving down housing prices, Cox says.
"So many people are underwater and can't refinance or sell their homes," said Cox, "and that in turn leads to more foreclosures, which leads to lower housing prices as these properties swamp the market."
About one-fourth of Minnesota homeowners are underwater -- meaning they owe more on their homes than their homes are worth. That's below the national average of about 30 percent, and much less than the hardest-hit states, where about half of homeowners are underwater.
What's pushing up foreclosures now is complicated -- people who took out risky adjustable rate mortgages a few years ago are facing higher payments as those rates go up.
Even those with fixed-rate loans are at risk. With jobs scarce, people who've lost their jobs are staying unemployed longer, and housing prices remain depressed.
To stop the bleeding, Prentiss Cox says it's going to take strong federal action.
"The human cost here is extraordinary," he said. "We need to do bold, mandatory, transparent loan modifications in order to stabilize housing prices, in order to make sure we get back on track in the economy."
Cox and other housing experts say recent federal programs designed to help struggling homeowners avoid foreclosure lack teeth. Lenders and servicers are free to use their own formulas to decide who qualifies for permanent modifications, and there is little enforcement.
As a result, millions of homeowners who may qualify for loan modifications under programs such as Making Home Affordable are still waiting.
Cox says more transparency and mandatory rules, tougher enforcement and penalties for lenders would go a long way toward bringing down the foreclosure rate and stabilizing the economy.
Homeowner Jesse Adams agrees, saying "if we could just get the rest of the economy back to something more normal, so that my wife was making a normal income and I was making a normal income, then I wouldn't have issues that way."
Adams is skeptical about his prospects for a permanent mortgage modification, but is considering giving it another try in hopes of lowering his monthly payments.
"If I could get it modified down, I wouldn't have to worry about coming up with it, because $900 is a lot easier to scrape up than almost $1,300," Adams said.
In the meantime, his family keeps expenses down by eating at home and not going out much. They also just cancelled their cable, telephone and Internet package.