Recession squeezes wealthy homeowners, too

MINNEAPOLIS (AP) -- The economy may be showing signs of recovery, but these are times of financial desperation for a growing number of Minnesotans, particularly those living in the Twin Cities' suburbs.

Unemployment remains stubbornly high in some industries, and bankruptcy filings are surging. Home values continue to increase, but so do the number of people who can't afford their mortgage payments.

By the end of November, home foreclosure sales in fast-growing Sherburne County were already up 50 percent over all of 2001. Foreclosures in Carver County, home to some of the highest household incomes and home values in the region, have almost tripled this year, and personal bankruptcy filings are up 26 percent.

"We've seen a 50 percent increase in the number of people coming in for help," said Jan Backlin, a mortgage foreclosure prevention counselor for Anoka and Washington counties. "A lot of people are in deep financial distress."

Minnesota's foreclosure rate is still half the national average, in part because of the number of assistance programs available to homeowners. But the state's rate is rising too.

At midyear 2001, fewer than four of every 1,000 mortgaged homes were in foreclosure in Minnesota. Twelve months later, 5.3 of every 1,000 mortgaged homes in Minnesota were in foreclosure, and five times that many were at least 30 days late on a mortgage payment.

Recessions always bring a spike in foreclosures and bankruptcies, but lawyers, mortgage counselors and others say things are different this time. Many homeowners have taken advantage of soaring home values and low interest rates and have borrowed heavily against their homes to pay off credit cards, meet margin calls in their depleted brokerage accounts, or buy new plasma-screen televisions.

A job loss, drop in income or a sudden, unexpected expense has left them with little or nothing to fall back on.

"People have been encouraged or duped into stripping all the equity out of their homes," said Liz Ryan Murray, a program officer with the Home Ownership Center, a consumer advocacy group in St. Paul.

Nationwide, more than 12 of every 1,000 mortgaged homes were in foreclosure at midyear, up from nine a year earlier, according to the Mortgage Bankers Association of America. In the three months ended last June, lenders began foreclosing on four of every 1,000 mortgaged homes, the highest rate in the 30-plus years the association has been keeping records.

The economy is the main culprit. Minnesota has seen a net loss of about 54,000 jobs since March 2001. Unlike previous recessions, the most recent hit the Twin Cities especially hard as companies such as ADC Telecommunications and Northwest Airlines slashed their payrolls. State figures show that the Twin Cities lost almost 30,000 high-paying transportation and high-tech manufacturing jobs in an 18-month span.

"In many ways, the Twin Cities was in the eye of the storm of this recession," said Jay Mousa, director of research for the Minnesota Department of Economic Security.

Nationwide, foreclosure rates are higher among low- and moderate-income families with imperfect credit and high-interest loans. But that is not the case in the newer, wealthier Twin Cities suburbs, where the price of a house can easily top $200,000. Recent foreclosure notices include a $3 million Wayzata house, a $250,000 home in Maple Grove and a $400,000 home in Chanhassen.

Most lenders want to avoid foreclosure because they ultimately lose money on the property, said Larry Wilford, a St. Paul lawyer who represents about two dozen mortgage lenders. Many private mortgage insurers also require lenders to develop workout plans for missed payments.

Unlike many states, Minnesota has its own network of organizations to assist strapped homeowners.

The Minnesota Mortgage Foreclosure Prevention Association trains housing counselors throughout the state, and their organizations receive state funding that can be used, usually in the form of zero-percent-interest loans, by homeowners to catch up on missed mortgage payments.

Financial assistance is limited, however, to $5,500 per family, and the pinched state budget means many organizations have less money to dole out this year.

Some people have to sell their home to avert foreclosure, but many are reluctant to sell. Many have so much debt on their house that they would not get enough equity back to buy another one. The tight and expensive apartment market makes some fear that their family will end up homeless.

A growing number of homeowners are taking the bankruptcy route.

Business is booming for Jack Prescott, a New Brighton lawyer who specializes in personal bankruptcy filings. Most of Prescott's clients file a Chapter 7 petition, which is a liquidation of all debts, including the mortgage, although the lender can then foreclose.

But a growing number of his clients are filing Chapter 13 petitions in hopes of holding on to their homes. A Chapter 13 filing halts the foreclosure process and forces the lender to negotiate a repayment plan for past-due mortgage payments.

"I do about 30 Chapter 13s a month, and nearly all of those are to save a house," Prescott said.