Foreclosure Properties Batter Middle Class in Minnesota

by Peter Vernon on States

Nonprofit housing counselors in Minnesota are discovering that more and more homeowners approaching them to save their homes from becoming foreclosed properties for sale are middle class families.

The counselors’ observation is supported by a report from the Minnesota Home Ownership Center in Saint Paul, which states that most homeowners who met with foreclosure counselors in 2008 held prime mortgages. The center, financed by government agencies, foundations and corporations, analyzed data from 11,809 mortgage borrowers who attended foreclosure counseling sessions across Minnesota in 2008.

In 2008, 60 percent of all homeowners who approached the center for help were owners of prime mortgage loans, while just 37 percent held subprime loans. The year before, 57 percent of homeowners had prime loans while 43 percent had subprime mortgages.

Of the 60 percent that had prime mortgages, 27 percent were holding adjustable rate loans, which borrowers later found out to be too risky.

Julie Gugin, executive director of the center, said it increased its staff from 20 counselors to 72 counselors in 2008 to be able to serve borrowers troubled by foreclosure properties last year. She said the center receives a yearly budget of $2.3 million, which it also shares with other nonprofits working to reduce the number of foreclosure properties in the state.

Gugin said that most of the middle class couples who sought help cited reduced income as the reason for their financial difficulties. While these middle class couples know they can afford their monthly payments during the time they took out the loans, many subprime borrowers had some doubts about the affordability of their loans.

Wells Fargo senior economist Scott Anderson said the shift in Minnesota foreclosures is also occurring nationwide. He said unemployment and other difficulties that arose from the recession are now the main reasons for the second flood of foreclosure properties.

According to the Mortgage Bankers Association, the national default rate for prime mortgage loans increased to 5.06 percent in the last quarter of 2008 from 4.34 in the previous quarter.

Gugin reported that the center was able to prevent 55 percent of over 9,000 houses from becoming foreclosure properties in 2008. She said they accomplished it by aggressively pursuing mortgage lenders. She added that of those homeowners who were helped to save their houses from becoming foreclosure properties, 86 percent were successful in getting their monthly payments reduced to affordable levels.