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How the Housing Crisis has hit the East Side and
North End of St. Paul
May 2012
Table of Contents:
Introduction
Foreclosures
Vacant Houses
Home Values
Recommendations
10
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul
US Bank
US Bank was a major investor in New Century Financial,
the poster child for bad practices in the mortgage industry. By 2007, when the company filed for bankruptcy, New
Century was the second largest subprime mortgage lender
in the country.14
In 1998 and 1999 when it was difficult for subprime lenders
to raise capital, US Bank came to New Centurys rescue and
invested $40 million in the company. US Bank reaped a
profit of nearly $18 million from this investment within just
a few years.15
In contrast to US Bank, New Century, which made loans
with high rates and enormous fees, made a large percentage of its loans to minority neighborhoods. From 2004 to
2006, New Centurys last year of business, almost half of the
refinances New Century made in St. Paul were in minority
neighborhoods. Whereas just 14% of US Banks refinances
in St. Paul were in minority neighborhoods.16
Wells Fargo & Wells Fargo Financial Refinance Loans in St. Paul:17
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul
FORECLOSURES
The number of foreclosures in Ramsey County sky- The regulators found that mortgage servicers were
rocketed from 632 in 2005 to a peak of over 3,000 in only reaching a minority of delinquent homeowners
2008. Although the number of foreclosures has passed with their foreclosure prevention efforts.
its peak, Ramsey County still experienced over three
Nearly three years into the foreclosure crisis, we
times more foreclosures in 2011 than in 2005, and it
find that more than 60% of homeowners with seriappears that there will be thousands more in the next
ously delinquent loans are still not involved in any
few years.
loss mitigation activity.24
A recent Star Tribune article noted that there may be
an increase in foreclosures coming in Minnesota. The As the foreclosure crisis has exploded, mortgage serarticle attributed the decline in foreclosures in part to vicers have failed to adequately meet the number of
the hold that lenders put on foreclosures due to the delinquent homeowners. In a recent GAO survey of
robo-signing scandal, and quoted a real estate expert non-profit housing counselors, for example, seventywho said that theres definitely another round of fore- six percent of the counselors reported that overall
their clients had a negative or very negative expeclosure coming down the pipeline.18
rience with the mortgage servicers. The most comForeclosures in Ramsey County19
monly cited problems were of homeowners receiving
inconsistent or confusing information, speaking to a
Year:
2005 2008 2011
different representative each time they called, of serNumber of Sheriff s Sales: 632 3,023 2,078
vicers losing their paperwork, and of the decisionThe areas in the Twin Cities that have been the most making process taking too long.25
affected by foreclosures are the North Side of Minneapolis and the Payne-Phalen neighborhood on St. Even worse, the Office of the Comptroller of the CurPauls East Side.20 In St. Paul, the zip codes with the rency (OCC) conducted examinations of the foreclomost foreclosure activity since last April are all on the sure processes of US Bank and Wells Fargo and found
that both banks engaged in unsafe or unsound pracEast Side.21
tices26, such as:
Zip Code
Foreclosure since April 2011
55106
406
Filing legal affidavits in which bank employees made
55119
229
assertions that they claimed, falsely, were based on
55117
214
personal knowledge or review of the relevant records
According to a national study by the Center for Re- Filing numerous affidavits courts that were not
sponsible Lending approximately 8 percent of Af- signed in the presence of a notary
rican-American and Latino families have lost their Failing to devote adequate oversight, internal conhomes to foreclosure compared to 4.5 percent of white trols, policies and procedures to their foreclosure profamilies.22
cesses
Failing to sufficiently oversee outside lawyers and
Many of these foreclosures can and should be avoided. other third-parties handling foreclosures
A report from state regulators stated:
In addition the OCC found that Well Fargo:
[T]oo many homeowners experience foreclosure Initiated foreclosures without always ensuring that
when finding an alternative solution would be in the mortgage documents met legal requirements
interest of both the homeowner and the mortgage Failed to devote sufficient financial, staffing and manholder. Preventing these unnecessary foreclosures agerial resources to its foreclosure processes
would help not only the struggling homeowners and
mortgage investors, but also the neighborhoods and
local governments that bear the indirect costs of
foreclosures.23
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul
VACANT HOUSES
Foreclosures not only impact the individual homeowners
but also local governments, neighbors, and other property
owners. Especially when a foreclosure leaves a home vacant
and unsecured, it can cost cities and counties tens of thousands of dollars.
Foreclosures result in decreased revenue for cities and counties through lower property values, delayed and uncollected
taxes, and unpaid services. At the same time that foreclosures City Properties on Citys Vacant Building List29
mean less revenue for cities and counties, they also impose
additional requirements to those cities and counties for in2004 2008 2012
creased policing, building inspection, demolition, property
St. Paul
370
2,000 1,291
maintenance, and managing the foreclosure process.
Minneapolis 286
857
851
After peaking in 2008, the number of vacant houses has Vacant Building Registration Fee30
started to decline, but there are still almost four times more
St. Paul
$1,200
properties on St. Pauls vacant building list than there were Minneapolis $6,985
in 2004.
If St. Pauls vacant building registration fee were the same as
27
Vacant and Boarded Buildings in St. Paul
that in Minneapolis, it would result in over $7 million a year
Year
2004 2008 2012
in extra revenue for St. Paul.31
Buildings
370
2,000 1,291
The vacant buildings are disproportionately concentrated
on the North End and East Side of St. Paul.
Over sixty-percent of the vacant residential buildings are in
Wards 5, 6, and 7.
The largest number of vacant residential buildings in St.
Paul is in Ward 7.
Ward
7
6
1
5
2
4
3
293
238
228
226
143
63
22
% of total vacant
24.1%
19.6%
18.7%
18.6%
11.8%
5.2%
1.8%
Vacant homes have been the site of numerous crimes. In addition to burglary and trespassing, there have been several
high profile incidents in St. Paul recently. In March, police
charged nine men and teens with dragging a 14 year old girl
into a vacant home and sexually assaulting her. That same
month, a man was killed on the porch of a vacant home
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul
HOME VALUES
The unprecedented numbers of foreclosures and vacant
homes caused a steep and continuing decline in home values throughout the city, but especially in minority neighborhoods.
Single Family
Home Prices
Change from
2006 to 2011
Neighborhood
April 2006
January 2012
Thomas Dale
Daytons Bluff
Payne Phalen
North End
Greater East Side
Battle Creek
St. Paul City
West Side
Summit-University
West 7th
Midway
Como
Merriam Park
St. Anthony
Macalester-Groveland
Highland
Summit Hill
$168,000
$170,500
$182,000
$180,500
$186,50
$207,500
$205,300
$187,000
$212,800
$186,500
$196,500
$233,000
$305,100
$341,500
$306,000
$301,500
$490,200
$77,600
$81,900
$93,200
$95,200
$99,900
$113,200
$122,600
$112,400
$133,500
$117,400
$130,600
$167,600
$225,500
$268,900
$245,500
$247,000
$408,200
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul
Dollar %
-$90,400
-$88,600
-$88,800
-$85,200
-$86,600
-$94,300
-$82,700
-$74,600
-$79,300
-$69,100
-$65,900
-$65,400
-$79,600
-$72,600
-$60,500
-$54,500
-$82,000
-53.8%
-52.0%
-48.8%
-47.3%
-46.4%
-45.5%
-40.3%
-40.0%
-37.3%
-37.1%
-33.5%
-28.1%
-26.1%
-21.3%
-19.8%
-18.1%
-16.7%
9
RECOMMENDATIONS
1) The state of Minnesota, counties, and cities should
adopt a foreclosure mediation program to prevent unnecessary foreclosures.
3) Local governments, school boards, and public agencies should require that any banks they do business with
meet responsible lender criteria that includes using best
practices for foreclosure prevention.
There is growing recognition of the effectiveness of foreclosure mediation programs in preventing unnecessary foreclosures. The number of states and municipalities that have
such programs continues to grow, and there are now jurisdictions in 24 states that have foreclosure mediation.
4) Local governments, school boards, and public agencies should require that any banks they do business publicly disclose information regarding its foreclosures, including:
a. The number of homeowners eligible for loan modificaForeclosure mediation benefits all of the involved parties:
tions
- Servicers avoid a long and costly foreclosure process since b. The number that received or were denied permanent
more than 70 percent of mediated cases reach a settle- modifications
ment.36
c. The principal and/or rate reduction in each modifica- More than half of homeowners in mediated cases get to tion
keep their homes, while those for whom that is not a sus- d. A breakdown for each of the above categories by the race,
tainable option also benefit by negotiating a graceful exit ethnicity, and census tract of the
in how and when they move out.
homeowners.
- For government, mediation can reduce the number of vacant homes and stabilizes property values and tax revenue. 5) Mortgage servicers should comply with the following
In 2009 the Minnesota legislature passed the HomeownerLender Mediation Act which would have required lenders
to offer homeowners the opportunity to participate in nonbinding mediation before the lender could foreclose, however Governor Time Pawlenty vetoed the bill.37
10
WORKS CITED
1 Home Mortgage Disclosure Act data from 2004-2006
2 Foreclosures in Minnesota: A Report Based on County Sheriff s Sale Data, February 15, 2010, Housing Link, p. 8
3 Realtytrac.com, Foreclosure statistics for pre-foreclosure, auction, and bank-owned properties,
4 Data from city of St. Paul Vacant Building Registration List March 12, 2012, 846 single family, 307 duplexes, 64 multi-family
5 Data from city of St. Paul Vacant Building Registration List March 12, 2012
6 Data from city of St. Paul Vacant Building Registration List March 12, 2012
7 Zillow Home Values Index, calculated March 21, 2012
8 Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures, Debbie Gruenstein Bocian, Wei Li, Carolina Reid, Center for
Responsible Lending, November 2011, p. 11. Income is No Shield Part III. Assessing the Double Burden: Examining Racial and Gender
Disparities in Mortgage Lending, National Council of Negro Women and National Community Reinvestment Coalition, June 2009, p. 1.
Unequal Opportunity Lenders? Analyzing Racial Disparities in Big Banks Higher-Priced Lending, Andrew Jakabovics and Jeff Chapman,
Center for American Progress, September 2009, p.1.
9 Home Mortgage Disclosure Act data
10 Home Mortgage Disclosure Act data
11 Wells Fargo, Countrywide Mortgage Settlements Give Homeowners a Bit of Relief, Daily Finance on AOL.com, Catherine New, July 22,
2011
12 Up to 10,000 customers, up to $20,000 each, equals $200 million
13 July 31, 2009 Press Release, Madigan Sues Wells Fargo for Discriminatory and Deceptive Lending Practices
14 New Century, Biggest Subprime Casualty, Goes Bankrupt, Bloomberg, April 2, 2007, Bradley Keoun and Steven Church.
15 U.S. Bancorp Profits Handsomely from Its Investment in New Century, National Mortgage News, March 11, 2002, Brad Finkelstein
16 Home Mortgage Disclosure Act data
17 Based on Home Mortgage Disclosure Act (HMDA) data for first lien conventional refinance loans
18 More home foreclosures on horizon in Minnesota, Star Tribune, Jim Buchta, April 16, 2012
19 Foreclosures in Minnesota: A Report Based on County Sheriff s Sale Data, February 15, 2010, Housing Link, p. 8, and 2011 Foreclosures
in Minnesota: A Report Based on County Sheriff s Sales Data, February 24, 2012, p. 5
20 Fostering Equitable Foreclosure Recovery, Sarah Treuhaft, Kalima Rose, and Jennifer Tran, Policy Link, January 2012, p. 14
21 Realty Trac. Includes pre-foreclosure notices and sheriff s sales
22 Speculators, Not CRA, Behind Foreclosures in Black Neighborhoods, September 7, 2011, American Banker, John I. Gilderbloom and
Gregory D. Squires
23 Analysis of Mortgage Servicing Performance, Data Report No. 4, January 2010, State Foreclosure Prevention Working Group
24 Redefault Rates Improve for Recent Loan Modifications, State Foreclosure Prevention Working Group Memorandum on Loan Modification Performance, August 2010
25 GAO-11-367R Survey of Housing Counselors about HAMP, May 26, 2011, United States General Accounting Office
26 United States of America, Department of the Treasury, Comptroller of the Currency, Consent Order AA-EC-11-18 In the Matter of US
Bank National Association, and United States of America, Department of the Treasury, Comptroller of the Currency, Consent Order AAEC-11-19 In the Matter of Wells Fargo Bank N.A.
27 In housing meltdown, cities turn into buyers, Star Tribune, Chris Havens, February 7, 2010 and City of St. Paul vacant building list as of
March 1, 2012, http://www.stpaul.gov/index.aspx?NID=2272
28 Vacant houses not always emply, Star Tribune, April 30, 2012, Chao Xiong.
29 In housing meltdown, cities using federal money to address foreclosures, Star Tribune, September 18, 2010, Chris Havens, City of St. Paul
vacant building list as of March 1, 2012, http://www.stpaul.gov/index.aspx?NID=2272 , and Minneapolis List of Vacant and Condemned
Properties as March 2, 2012,
http://www.ci.minneapolis.mn.us/www/groups/public/@regservices/documents/webcontent/convert_254314.pdf
30 Minneapolis Directors Fee Schedule, p. 6
31 The Minneapolis annual fee is $5,546 higher than the St. Paul fee. There are 1,291 vacant buildings current on St. Pauls vacant building
registration list. $5,546 x 1,291 = $7,159,886
32 Wealth Gap Rise to Record Highs Between Whites, Blacks, Hispanics, Pew Research Center, July 26, 2011
33 Wealth Gap Rise to Record Highs Between Whites, Blacks, Hispanics, Pew Research Center, July 26, 2011
34 Zillow Home Values Index, calculated March 21, 2012
35 According to Zillow.com, the value of the average home in St. Paul has declined $82,700 from April 2006 to January 2012. There are 74,000
single family, duplex, triplex, condo units, and townhomes in the city of St. Paul, according to the Wilder Research Centers Census Facts.
This calculates to a total of $6.1 billion in total lost home value. Using the Ramsey County tax rate of 1.01% of a homes value, the loss in
value means $61.8 million in lost property taxes. The city receives about 25% of the total property tax. http://www.stpaul.gov/DocumentView.aspx?DID=17200
36 Walk the Talk: Best Practices on the Road to Automatic Foreclosure Mediation, Alon Cohen, Center for American Progress, November
2010
37 Minnesota AG to push for Foreclosure Mediation, Housing Wire, Jon Prior, January 8, 2010
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul
10
This study was published by ISAIAH, a faith-based coalition of more than 100
member congregations that works for economic and racial justice throughout the
State of Minnesota.
2720 East 22nd Street Minneapolis, MN 55406 | (612) 333-1260 | www.isaiahmn.org