Friday, August 10, 2007

Foreclosures, Predatory Lending and the Subprime Mortgage Meltdown

There was a field hearing of the U.S. House Financial Services Committee in Minneapolis last night on Predatory Lending and Foreclosures. The hearing is covered in part on Joe Bodell's Minnesota Campaign Monitor:

Chairman Frank noted in his opening remarks that "foreclosures are not occurring in little houses on the prairie -- they're happening in neighborhoods." He went on to discuss the issue of the unregulated, non-FDIC mortgage market, saying that "if only regulated banks made mortgage loans, we might not have this problem -- this is largely a problem in the unregulated segment of the mortgage market."

Mayor Coleman and Council President Johnson both discussed the state of affairs in their cities, while Attorney General Swanson focused on Minnesota issues and legislation related to home mortgage standards.

[Joe Bodell, MN Campaign Report]

Thee is also coverage in the Star Tribune: Predatory lending takes a verbal beating and an article in the East Central Minnesota Post Reviewin forms us that there are twice as many foreclosures as previously thought in outstate Minnesota:

“This newest study reveals what was an invisible epidemic of foreclosures in Greater Minnesota,” said Warren Hanson, president of Greater Minnesota Housing Fund. “We now see that the foreclosure crisis extends to every corner of the state and hurts both families and neighboring property owners,” said Hanson.

The new study quantified for the first time the number of actual sheriffs’ sales of foreclosed properties county by county in Minnesota in 2006. It found a stunning 11,207 foreclosures statewide - nearly double the 5,995 reported in a national study conducted by RealtyTrac, a leading provider of real estate industry data, over the same period.

The study, which covered the 80 counties outside the Minneapolis-St. Paul metropolitan area (“Greater Minnesota”), was commissioned by Greater Minnesota Housing Fund and prepared by HousingLink, a Minneapolis-based research organization that provides information to housing organizations and policymakers. To assure the integrity of the study, researchers contacted officials in each of the 80 counties of greater Minnesota to collect actual sheriff’s sale data-the first time that such a study has been completed. It complemented a similar 2007 study on foreclosure trends in the seven-county Minneapolis-St. Paul area completed by Housing Link for the Foreclosure Prevention Funders’ Council, a collaboration of Twin Cities area affordable housing funders.

Previously, data on Minnesota’s foreclosure rates depended on nationally-publicized foreclosure reports which cite RealtyTrac data, a national provider of real estate data. The two new Minnesota based studies highlight that the foreclosure crisis in Minnesota may be much worse than many officials realized.

Greater Minnesota foreclosures were up dramatically from 2,707 in 2005 to 4,168 in 2006. Based on first quarter 2007 foreclosure figures, Greater Minnesota Housing Fund and Housing Link project that total foreclosures will reach 8,721 in Greater Minnesota in 2007. The 2007 projected rate of foreclosures varies widely across the state, with rates ranging from 1 in every 1000 households in foreclosure in some rural counties to more than 2 of every 100 households in the hardest hit counties. Foreclosure rates tend to be highest in the counties that adjoin the Twin Cities metropolitan area. For example, approximately 3 of every 100 households in Chisago and Isanti counties are projected to be in foreclosure in 2007.

Foreclosures often result from what are called subprime loans and predatory sales practices. “Not all subprime loans are predatory,” University of Minnesota housing-studies professor Jeff Crump told the group in St. Cloud, “but nearly all predatory loans are subprime.”

Predatory practices include lending without regard to borrowers’ ability to pay, failing to verify borrowers’ income, “churning” or repeat refinancing, charging excessive fees, and high-pressure sales and marketing. “Predatory loans,” says Crump, “are sold, not bought.”

[East Central Minnesota Post Review]

Clearly this an issue that will effect all Americans, not just Wall Street personalities like Jim Cramer and his friends on the causation side of things, not just those being foreclosed on, but whole comunities, and especially those communities that have concentrations of foreclosures and vacant buildings.

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