Concern Continues Despite 12 Percent Decline In Minnesota Foreclosures

Minnesota foreclosures dropped to about 23,020 cases in 2009, a decline of 12 percent from 2008s 23,300 foreclosures. But the decline gives little reason to celebrate. The 23,020 Minnesota foreclosures last year constitutes 1.3 percent of the total number of residential units in the state. This is triple the historical average for foreclosures as a percentage of total residences.

The greatest cause for concern, according to real estate analysts is that there was no decline at all in the number of homeowners who fell behind on their payments. This indicates that there are thousands of homeowners who lost their jobs in 2009 but haven’t yet lost their homes. As these people exhaust their unemployment insurance benefits, the decline in the foreclosure rate could be but blip in a longer-term decline.

The biggest problem in the state is high unemployment. Employment state-wide has been declining for some time and foreclosure rate for residential properties actually started to increase in 2005, long before the housing bubble burst and the housing crisis began in 2008. According to the government of Minnesota fully one home in twenty has gone through foreclosure over the past five years.

Much of the credit for the decline in foreclosures in 2009 must go to the Minnesota legislature. In June of last year the foreclosure statutes were modified to allow homeowners to postpone a forced sale date for the first time in Minnesota history. The postponement is only allowed once. But if a homeowner can find employment and get their mortgage out of arrears, it is possible to avoid foreclosure all together.

Another factor in lowering the Minnesota foreclosures rate was the mortgage modification program instituted by banks at the insistence of the Obama administration. The goal of the mortgage modification program is to lower payments to no more than 30 percent of household income. While this program has saved many homestead class units from foreclosure, it has not had as large an affect as hoped. This is because homeowners who have lost their jobs are frequently unable to pay for food and utilities, much less a mortgage.

Changes to Minnesota foreclosures rules that were implemented in the summer of 2009 were likely more successful in staving off foreclosures than were mortgage restructurings. Social activists and non-profit housing groups quickly spread the word of the changes to the homeowners they were already counseling and many used the new regulations to buy themselves the time they needed to find work and get their income back to where they were able to bring their mortgages current.

The most disturbing aspect of the Minnesota foreclosures crisis to the employment forecast looking forward. Analyst do not expect the employment rate in the state to decline by any more than half a percentage point over the course of 2010. That the rate is not expected to climb is great, but as can be seen by the foreclosure rate at current unemployment levels, flat or minimal growth in unemployment will not be enough to stop the bleeding.

On the bright side, if you are in the market for a home in Minnesota, or if you are an astute real estate investor, there are bargains the likes of which we may not see again. Sheriffs auctions of Minnesota foreclosures properties are yielding evidence that bargain hunting real estate speculators are starting move into the market.

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