Minnesota Foreclosures May Have Bottomed Out
A 12 percent drop in the Minnesota foreclosures rate in 2009 from 2008 is receiving a mixed reactions from economic analysts and advocates for affordable housing. Even with the decline, the Minnesota foreclosures rate remains 200% above the pre-2005 average of under one half of one percent. In terms of total numbers, the percentage decline translates to a drop from just under 23,300 foreclosures of residential properties in 2008 to just over 23,000 Minnesota foreclosures in 2009.
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.
Under and unemployment is an ongoing problem for the state. Actually, the Minnesota foreclosures rate started to increase in 2005. It is estimated that in the five years from the start of 2005 to the end of 2009 five percent of the residential properties in the state have gone through foreclosure.
A close look at what lies behind the 12 percent drop in Minnesota foreclosures totals for 2009 gives even less cause for optimism. Interest rates are threatening to rise as the federal government struggles with the largest deficit in the history of human civilization. Once this begins, a new wave of defaults will likely engulf the system. Additionally, those homeowners who were saved by mortgage restructurings underwritten by federal guarantees may well see their restructured mortgages restructured upward when renewal time comes in an environment of higher interest and a tighter money supply.
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.
The June 15, 2009, amendments to Minnesota foreclosures laws has also been a factor in the 2009 foreclosure rate decline. However, the reduction of the redemption period from 6 months to 5 weeks for those homeowners who opt to have the forced sale postponed for 5 months means that those who are unsuccessful in restoring their incomes and catching up on their payments practically guarantees a forced personal bankruptcy as lenders struggle to recoup what they can.
According the Minnesota governments own findings, the unemployment rate in the state will at best decline by . 5 percent over the course of 2010. While it is good news that unemployment rate seems to have bottomed out, there will continue to be foreclosures at least double to triple the historical average over the next 4 quarters. It is figures and scenarios like this that have some predicting the Minnesota housing crises may continue to the point where it rivals the the Great Depression.
On the upside, there has never been a better time to buy investment properties. In a practice that is still rare but on the upswing, speculators are approaching homeowners who have been granted a postponement of a forced sale in Minnesota foreclosures proceedings. The investors offer to buy the home for the amount owing on the mortgage and then rent the property back to the current owner at a rate they can afford. This may well be one of the few cases where predatory speculation actually works to improve a situation rather than make it worse.
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