State lawmakers and the governor have approved bills addressing the Minnesota mortgage foreclosure crisis.
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Home mortgage defaults in Minneapolis climbed more than 100 percent during the first three months of this year compared with the same period last year.
The ground is thawing, but the Minneapolis Star-Tribune wonders whether the market for new construction remain on ice in the Minnesota housing market?
A Hennepin County judge has granted class-action status to a lawsuit that accuses bad credit mortgage lender Ameriquest Mortgage Co. of abusive and fraudulent lending practices.
The Minnesota housing market slowdown brought the good, the bad and the promising to the St. Cloud area.
The good: It is taking less time to sell homes, as Minnesota home prices are falling.
The bad: Home sales continue to decline, leaving inventory high.
The promising: The slump may be nearing its end.
Last year around this time, area real estate agents, builders and mortgage brokers knew a housing slowdown was on its way.
Area home builders began to roll out more and more incentives, home staging became more important and agents expected a reversal of the real estate appreciation trend.
A year later, the St. Cloud area is weathering its part of a national housing slowdown caused by an inflated market and overdue adjustment.
Despite continued low Minnesota mortgage costs, St. Cloud-area home sales fell 12 percent in the first quarter from the same period a year ago, to 248 units — an improvement from the 19 percent drop in the fourth quarter, according to the St. Cloud Area Association of Realtors Multiple Listing Service.
The area finished the quarter with almost 13 months of home inventory in March, compared with about eight months a year ago - in other words, far more properties than mortgage applicants to buy them.
Mark Herron, a real estate agent with Edina Realty in Waite Park, hung a sign that reads “Priced reduced” on a home for sale in St. Cloud to motivate buyers.
“It generates more interest from drive-by traffic,” Herron said.
Some real estate agents — particularly the most active — are continuing to do well, posting increased sales and showings from a year ago, according to Scott Reinert, president of the St. Cloud association and an owner of Showcase Properties in St. Cloud.
Showings through Showcase Properties rose 30 percent last quarter from the same period in 2006, and sales transactions increased 20 percent.
Competitive pricing remains the key. Minnesota real estate agents have finally had to recognize the importance of pricing right the first time and not wasting time listing clients not prepared to price according to the market.
Homes less than $175,000 that are priced right have sold quickly, Realtors have said. His company received multiple offers on a number of homes in that range last quarter.
Economists say the housing slump may be over, despite the growing problems with the subprime mortgage sector - the roots of which some observers believe lie right here in Minnesota.
The index for pending home sales of existing properties increased in February at a seasonally adjusted annual rate of 0.7 percent, according to data released last week by the National Association of Realtors.
SOURCE: St. Cloud Times
The bad credit mortgage loan crisis that has gummed up the housing sector nationwide doesn’t carry a Made in Minnesota tag. But it almost deserves that label.
Minnesota lenders - from Norwest and Green Tree to Metris - were pioneers in finding ways to cater to strapped borrowers, creating the lending template that others copied. And in a foreshadowing of the current situation, all of those lenders but Norwest (now Wells Fargo) eventually got themselves into serious financial trouble by bottom-feeding in the credit pool.
Such high-risk lending would seem to be in direct conflict with the stereotype of the stolid Midwestern banker.
But history suggests that it’s the risk-averse stereotype that needs adjustment and that no matter how many times subprime lenders blow up, new ones will rise here, unable to resist the temptation of lending at double-digit mortgage interest rates.
“It all comes down to risk and reward,” said Jim Campbell, a longtime Norwest and Wells Fargo executive. “Taking high risks gets you a lot of reward. It kind of feeds on itself.”
People get kind of greedy,” said Andrew Winton, chairman of the finance department at the Carlson School of Management at the University of Minnesota. “They don’t remember the past. They keep thinking, ‘It’s different this time.’ ”
The subprime allure has been at work inside Wells Fargo since 1982.
What was then Norwest bought Des Moines-based Dial Finance Corp., one of the first major banks to wade into subprime lending. At the time, a home loan lender who took on risky borrowers was with small, family-owned operations that could service only a limited number of applicants. With $1.1 billion in assets, Dial was one of the country’s largest consumer-finance companies to specialize in subprime loans.
“Dial had an incredible reputation,” Campbell recalled. The company “knew how to underwrite and manage that segment of the credit market.”
Dial later became Norwest Financial and now Wells Fargo Financial. It also became a profit machine for Norwest at a time when the bank was struggling to overcome bad commercial real estate loans in the 1980s.
Some analysts speculated that the success of Norwest Financial was what prevented the bank from becoming an acquisition target. In 1986, the unit generated 60 percent of Norwest’s profits.
To help spur growth, Norwest Financial expanded into home mortgages in the late 1990s, and Wells Fargo now is one of the largest issuers of subprime mortgages in the country. The company has taken a hit from bad subprime loans in recent months, but the impact has so far not been material because of Wells Fargo’s enormous size.
Chuck Eckberg was stunned when his clients last week announced they wanted to drop the $419,000 price on their house by $20,000.
The house, in Woodbury’s Eagle Valley subdivision, had been on the market just 44 days and was receiving great showings, said Eckberg, a real estate agent with Edina Realty. And price reductions are something sellers typically resist like a colonoscopy.
“I didn’t think we needed to reduce at all,” said Eckberg.
Welcome to an ultra-competitive spring housing market. Motivated sellers are cutting prices. And that new willingness to move the product marks the end of last year’s stare-down between buyer and seller - and could spell a sharper falloff in Minnesota home prices over the next year.
“They’re trying to beat other sellers to the punch because they don’t want to suffer through anything they saw, or many experienced, last year,” said Eckberg.
To be sure, there are holdouts, and sellers have been adjusting and trimming prices for many months now. But the shift in seller sentiment appears to be amping up this spring, Realtors say. Serious price reductions that typically don’t start until closer to the July 4 make-it-or-break-it point, are happening now.
“I think people are finally saying ‘I get it,’ ” said Steve Hyland, home mortgage broker manager of Edina-based Split Rock Real Estate.
After chugging up during the boom, home prices around the Minnesota housing market fell flat last year. Median sale prices have dipped into negative territory in recent months. Part of it is a plethora of offerings to choose from.
For-sale listings around the Twin Cities haven’t broken the record of 31,368 set last July, but as a national housing recession unfolds they have swelled again to 28,362. And that doesn’t capture all the empty newly built homes around.
Jeff Green, an agent with Edina Realty’s Anoka/Coon Rapids office, said several of his clients have taken reductions in recent weeks. The cuts are just nicks of 1 percent to 2 percent, but sellers are doing that more often now, he said, “taking steps to get in line.”
That’s great news for home purchase loan shoppers, but tough on owners and investors watching their prized pots of gold shrink. Such shrinkage packs a punch. Already one national economist has linked the reality of cutting home prices to drops in confidence among higher-income consumers in the recent University of Michigan Consumer Sentiment Survey.
When houses stop appreciating or lose value, foreclosures increase as overextended owners find themselves unable to dodge bullets by home mortgage refinancing or quickly unloading debt by selling. Indeed, the national surge of defaults and foreclosures has driven the subprime mortgage implosion that has grabbed headlines recently.
Depending on how deep it goes, a round of price slashing could lead to Twin Cities home prices falling more quickly in months ahead. No one is forecasting a dramatic drop-off given the area’s relatively stable economy. Local Realtors, always an optimistic lot, anticipate flat prices this spring.
If a small March price bounce happens ” then hallelujah!” said Hyland.
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With foreclosures mounting and the subprime Minnesota mortgage industry melting, a University of Minnesota housing forum Friday broached the $64,000 question: What now?
The forum offered few concrete answers to a complicated question, aside from discussing tough state anti-predatory-lending bills. Hosted by the university’s Center for Urban and Regional Affairs in Minneapolis, the meeting illustrated a groundswell of diverse attempts across the country to address an epidemic of foreclosures that shows no signs of abating anytime soon.
In one far-reaching move elsewhere, the Association of Community Organizations for Reform Now, the housing activist group known as ACORN, this past week called for a national one-year moratorium on foreclosures involving reckless bad credit home loans. On Thursday in Washington, meanwhile, lawmakers attending a U.S. Senate Banking Committee hearing on mortgage-market turmoil accused federal regulators of inaction.
And the mortgage industry itself continues to do some self-correcting.
Speakers in Minneapolis on Friday appeared to agree that risky subprime mortgage lending is primarily to blame for the spike in foreclosures around the Twin Cities and the rest of the country.
About 14 percent of the total $10.03 trillion of outstanding mortgages in the country are considered subprime, according to the Mortgage Bankers Association.
Turmoil in the $1.36 trillion U.S. subprime-mortgage market continues as home prices weaken, defaults rise and investors and lenders back away from riskier subprime mortgage products such as mortgages with no down payments.
“This was a social experiment, and it’s terrifying,” speaker Prentiss Cox said of subprime lending. Cox is a University of Minnesota law professor specializing in consumer protection.
Speaker Karen Reid, executive director of the St. Paul-based Neighborhood Development Alliance, underscored the local financial impact of rising foreclosures, charting the “arc of hardship” of more than 900 vacant homes in various Minnesota housing markets. Each vacant home costs the city government alone $5,358 in reduced taxes, unpaid service fees and maintenance costs, Reid said, citing a 2005 study by the Bloomington-based Homeownership Preservation Foundation.
That study, based in Chicago, estimated that each foreclosure costs local governments and neighborhoods at least $34,000. Indirect financial impacts are far greater, depending on how much foreclosures drag down nearby property values, the study found. As for the mortgage industry, each foreclosure costs it an average of $59,000, including costs to resell the house, according to a widely cited 2002 study by Craig Focardi at Needham, Mass.-based TowerGroup Inc.
Reid said that lenders appear more likely now to negotiate with borrowers who have fallen behind. She and foreclosure-prevention counselors in the audience urged homeowners to get free counseling early on and not wait until they get foreclosure notices to seek help. There are some assistance funds available to help troubled homeowners switch into better home loans.
A storm of rising foreclosures nationally and the implosion of the subprime mortgage market has sparked other changes around the country in recent months.
Federal and Minnesota regulators issued guidelines late last year on making nontraditional mortgages, urging originators to do a better job of gauging their risks and a borrower’s ability to repay, and ensuring that consumers are fully informed of the terms of their loans, among other things.
Freddie Mac, said last month that as of Sept. 1, it no longer will buy securities backed by particularly risky adjustable-rate mortgages, or no-income/no-asset mortgages. It also will toughen up its requirements for documenting incomes.
There may or may not be a real estate bubble in Ramsey County - but there’s no denying this Minnesota housing market is losing some serious air.
Need proof? Tax statements that hit mailboxes this week show that as many single-family homes in St. Paul lost assessed value as gained value for 2007, according to a county report.
It’s the first such widespread decline county officials said they can remember. In each of the previous four years, nine of 10 homes in the city gained value, a Pioneer Press analysis found.
The numbers mark a sea change for residential real estate, which makes up almost three-quarters of the nearly $50 billion worth of assessed property in Ramsey County. The declines also parallel stagnating middle-class incomes, along with the changing fortunes of the Minnesota mortgage business.
The news came in the mail for people such as Phyllis Folta, who lives on East Third Street in St. Paul. Like nearly all of her neighbors, she saw the assessed value of her home slip by thousands of dollars on the tax statement she got this week — while her property taxes went up 17 percent.
After more than a decade of steady rises in her home’s value, she noticed the change immediately and cited the decline from memory when asked.
“I have the statement right here by my phone,” she said. “I was hoping the county would send something, some kind of explanation.”
County assessor Stephen Baker cited a number of factors in the change:
“It reflects some uncertainty in the market that we saw,” Baker said. He said actual sale prices alternately led assessments, trailed assessments and switched back and forth during the last year. “It looks like the market is stagnating, and this is where the models told us to go.”
It didn’t produce a precipitous drop in value, either, because the total value of residential property in the county still managed to rise 0.1 percent, excluding improvements.
And county officials note a small upside to the change: The gap between taxable and market values is shrinking, years ahead of the statutory phase-out of the state’s “limited market value” law. This stumble in values may avert some nasty tax surprises in coming years.
“The other thing that’s happening here is the affordability index is improving,” Baker said. “This is giving wages a chance to catch up a little with home prices and may bring more buyers into the market.”
But that’s small consolation to existing homeowners. While 48 percent of them saw their value decrease, just 6.6 percent got a break on their property taxes after excess school levies in Mounds View and the St. Paul housing market were factored in, according to county tax analyst Chris Samuel.
“I’d thought we were overvalued as it was,” said Roy Wendt, a retired Ramsey County accountant who lives with his wife, Delores, in the home they built in 1950, just south of the Ford Motor Co. plant in Highland Park. He said the “for sale” signs on his street seem to indicate a slump.
“There’s no way our house was going to sell for what it was assessed for,” he said. “This is a little more reasonable … but then my taxes went up 16.4 percent anyway.”
SOURCE: The Pioneer Press
A 10% drop in home sales in the the Minneapolis/St. Paul housing market at the start of the year was actually good news. The region looked even worse at the end of 2006, according to the Minnesota Association of Realtors.
Home sales in 2007 are expected to be “pretty much on par with last year, maybe starting to recover at the end of the year, meaning (sales) will be up a little bit,” says Chris Galler, senior vice president of the association.
The Twin Cities area enjoyed double-digit price appreciation from 2000 to 2002, after which price increases slowed to the single digits. Last year, home prices rose about 4.5%, Galler said.
Homes priced below $250,000 are selling well; the market in the southwest suburbs is the healthiest in the area. But those who expect to sell need to keep their homes well-maintained in order to attract Minnesota mortgage applicants.
“People aren’t willing to spend that much money anymore for properties that need work,” Galler notes.Real estate agents are concerned, though, about the many homes in mortgage loans in default, as well as investor-owned homes that are sitting vacant and for sale. Not only are homes in foreclosure often in disrepair, which depresses property prices, they’re also typically sold below market prices.
“We are working with a group to try to track the problem,” Galler says.
Many of the homeowners in default appear to have low incomes and carry high-interest, bad credit home loans geared toward borrowers with shaky credit histories. It’s a problem many states are currently facing.
SOURCE: USA Today