“Fully 40 percent of the people I talk to are working,” says Steve Rice. “That’s the main thing.”
The people Rice, a housing counselor with the City of St. Paul, is talking to are some of the several thousand city residents facing the loss of their homes. Many have experienced huge increases in monthly premiums when higher interests kicked in on adjustable rate mortgages (ARMs). But that’s far from the only reason foreclosures are skyrocketing.
“It’s not just adjustments [in mortgage interest rates],” Rice explains. “It’s everything – taxes, gasoline, heating bills. Everything’s going up and people are having a harder and harder times making ends meet.” As an example, he cites the case of a St Paul homeowner whose salary was enough – barely – to cover expenses, including mortgage payments, but whose health insurance premium suddenly jumped $650 a month.
“This person has credit to die for, but can’t make the full payment on the house anymore,” he says. Rice estimates that about one-third of his clients found themselves in arrears because of a medical emergency, job loss or other unexpected drops in income.
Last year there were 1,834 sheriff’s sales of homes in St. Paul; another 282 occurred in the first month of 2008 alone. A sheriff’s sale takes place after the owner of a house in foreclosure has fallen at least four months behind in payments. After the sale, there is a six-month redemption period. During that time the owner can continue to occupy the house without making any payments. Some owners use this period to scare up new financing that will allow them to stay in the house, others sell the property and pay off the mortgage, while still others – the vast majority – simply run out the clock, hoping for a miracle. Besides the large number of sheriff’s sales, there are 1,591 St. Paul homes that are officially vacant – meaning they have been registered with the city – and an unknown number that are vacant but not registered, largely because it costs $500 per year to register a vacant house.
This number – 1,591 – has nearly quadrupled since 2005 and is much higher than the norm for St. Paul, according to Andy Dawkins, who ran the city’s housing enforcement department under former Mayor Randy Kelly between 2001 and 2005.
“The most we ever had during the time I headed the agency was 600 vacant homes,” Dawkins says. “For most of the past couple of decades the number has been more like 400.”
Barring an unforeseen turnaround in the housing market – and the economy overall – the number of vacancies is bound to rise.
“About 40 percent of homes that are put up for auction at a sheriff’s sale end up vacant,” says Rice. “If we project out over 2008, that means about 50 units a month will become vacant. By the end of the year, we will probably see between 2,200 to 2,400 vacant houses in St. Paul.”
Those 1,591 vacant homes coupled with the 2,126 homes that have gone to auction represent 6.4 percent of St. Paul’s approximately 56,000 housing units. If Rice’s projections hold firm, by year’s end, some 7.5 percent of the city’s housing stock will either be in the last stages of foreclosure or officially vacant. Such a high percentage of troubled properties can’t help but further depress home values, reducing the amount of property taxes that can be collected by the already financially strapped city.
While the foreclosed and vacant houses are scattered around the city (“I recently spoke with a woman who had coffee with a sheriff’s deputy. He told her ‘You’d be surprised by the number of foreclosure notices I’m serving in North Oaks,’” Rice says), the greatest concentrations are, not surprisingly, in St. Paul’s poorer neighborhoods. Vacant buildings tend to attract drug dealers and other unsavory types who use them as a base of operations. In an effort to stem this tide, the City Council in January allocated $4 million for the purchase of vacant units in six St. Paul neighborhoods: Dayton’s Bluff, Payne-Phalen, the North End, the West Side, West Seventh, and Thomas Dale/Summit University.
For residents facing foreclosure, however, the city can offer only limited financial help. St. Paul operates a program that provides small, low-interest loans to help homeowners catch up on past mortgage payments, but these are restricted to residents who have enough cash flow to meet their payments once they are back on their feet. According to Rice, the loans are almost never extended to owners with ARMs.
“Unfortunately, we don’t have the money to bail folks out,” Rice says. “But the city is continuing to try to come up with new programs to help keep people in their houses, including a task force that’s trying to create an incentive program to convince banks and other lending institutions to be more flexible. In the end, this might even involve some bare-knuckle negotiations with financial institutions to reduce the size of loans.
“That may sound like heresy,” he says, “but it’s a sign of just how serious the situation is.”