March 2010 Feature Article
2nd Storm
New Surge of Foreclosures Looms in 2010
By Liz Potasek
Photography by John Linn
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After reading about declining foreclosure rates in 2009, it’s tempting to be relieved. But those numbers don’t signal the end. Most experts predict an increase in foreclosure rates in 2010, which means next year’s map might be painted in much darker colors.
“There are some dark clouds on the horizon, and we’ve got to be watching them,” says John Patterson, director of research and evaluation at Minnesota Housing Finance Agency.
By now we’re all too familiar with the path that led us here: Mortgage brokers issued risky loans.When the risky loans went into default, the banks started hurting. When banks started hurting, credit dried up. When credit dried up, consumers stopped buying and businesses couldn’t get capital. Mass lay-offs ensued.
In 2009, approximately 23,000 Minnesota homes were foreclosed even though foreclosure rates dipped by 12 percent from their 2008 levels. Since 2005, more than 88,000 Minnesota homes have been foreclosed, according to Housing Link, which tracks data on sheriff ’s sales.
Besides the continuing rate of high unemployment and underemployment, several indicators point to a probability of more foreclosures in 2010.
The first wave of home foreclosures occurred when subprime mortgage rates were reset, resulting in higher monthly payments for homeowners. According to the Greater Minnesota Housing Fund, more “prime” borrowers are expected to fall behind on mortgage payments due to long-term unemployment.
Many homeowners are also “underwater,” industry jargon for homeowners owing more on the house than it’s worth. When a homeowner is underwater, banks are typically less likely to offer refinancing options or adjustments on mortgages.
As the foreclosure epidemic grows, there’s a new push to keep homeowners in their homes. In August 2008, Minnesota passed a law that seeks to connect at-risk homeowners with foreclosure prevention resources available statewide. It requires that lenders notify approved foreclosure counseling agencies when they send pre-foreclosure notices to homeowners. In central Minnesota, Lutheran Social Services (LSS) Financial Counseling is the state-designated financial counseling agency.
In 2009, LSS received 7,789 foreclosure notices for Benton, Chisago, Isanti, Kanabec, Mille Lacs, Morrison, Pine, Sherburne and Stearns counties, and they sent packets of information encouraging homeowners to seek financial counseling. About 1,600 families responded.
To meet the growing demand, LSS hired 14 additional staff members across the state to serve as homeowner advocates. Counselors also help clients talk to their banks, develop budgets and avoid predatory scams.
“All indications, especially deepening unemployment, point to increases in foreclosures throughout 2010,” said Ed Nelson, communications director with the Minnesota Homeownership Center. “To keep pace, the number of foreclosure prevention counselors in Minnesota has more than tripled over the past two years.”
The Minnesota Home Ownership Center, www.hocmn.org, is the primary statewide contact for information about homeownership and foreclosure prevention. It provides referrals to local counselors to help homeowners avoid foreclosure whenever possible. In central Minnesota, Lutheran Social Services counselors can be reached directly by calling (888) 577-2227.
“We keep hearing from consumers who face corporate bureaucracies in which paperwork gets lost and calls aren’t returned, or where banks claim their hands are tied because the loan has been sliced up and sold on Wall Street,” Minnesota Attorney General Lori Swanson said. “We need to cut through the red tape and get some help to people.”
Behind every Minnesota foreclosure is a personal story of a person or family that fights to save their greatest financial asset. Some win. Others move on.
Kerry Schaub, Duluth
Kerry Schaub was trying her best to be a superwoman.
The wife and mother of three children, ages 13-19, worked to balance home, school and the family checkbook with her job as a National Guard airfield manager. But when her home came dangerously close to foreclosure, Schaub quickly realized that she could not do it all. “Basically I was lying to myself about finances,” she said.
Schaub was sent to Iraq three times in the past five years, not to mention a half dozen other deployments. Every time she left home, she would create a schedule for her husband and children, detailing all of the events, medical appointments and pertinent information for each day. She managed the family finances online and kept to herself about late payments.
Schaub knew her account balances went up and down, but her attention was focused on a different family crisis—helping her son with mental health issues. In October 2009, Schaub received a foreclosure notice. Her wake-up call came when Schaub’s sisters saw it in the newspaper.
“They pulled me aside,” Schaub said, and told her help was available at Lutheran Social Services Financial Counseling, where she met with a counselor and developed a budget. The counselor also advised her to come clean to her husband about their financial problems.
“The hardest thing to do is ask for help."
- Kerry Schaub
After Schaub broke the news in October, she and her financial counselor took on the daunting task of reversing the foreclosure. She spent hours researching veterans’ grants, filling out applications, and sending modification requests to her mortgage company. The clock was ticking. Her home was slated for a sheriff’s sale on January 13, 2010.
Just before Christmas, the mortgage company gave her a gift that many families pray to receive—a loan modification. For the relieved Schaub family, the holidays were never more peaceful.
Now back on track with manageable payments, Schaub is thankful for the support she receives from her family. She meets with her sister regularly to make sure everything is caught up, and she highly recommends Lutheran Social Services Financial Counseling.
Although it was difficult for Schaub to ask for help, financial counselors say the sooner homeowners seek help, the easier it is to find a solution. IQ
Katherine & Clayton Manning, Melrose
The Mannings never thought they would be poster children for the foreclosure crisis.
Five years ago, Katherine and Clayton moved from Wisconsin to Melrose, Minn. to be close to elderly parents. They found a home with an unfinished basement that Clayton, who was self-employed in the construction industry, could convert into additional bedrooms for their eight children.
The Mannings’ downward spiral began in 2008, when Clayton’s work seem to dry up overnight. He gave up his business to go to work for a local construction company, bringing in far lower wages than what was required to pay the bills.
Katherine tried to refinance their mortgage, but bank after bank declined the application based on the couple’s reduced income and lack of home equity. When payments went up on their adjustable rate mortgage, they thought they might sell the house in a gridlocked market. Realtors said the house was too expensive.
The family kept a tight budget, reduced every possible expense and charged the balance on credit cards. After 20 years as a stay-at-home mom, Katherine could not find a job. She kept calling the mortgage company, looking for any possible option to reduce their home payments.
The company told her she would only be eligible for assistance if she stopped making payments. Frustrated and confused, a door finally opened. She received a phone call from a bank who promised to give her a modification. She researched the company and quickly returned an application with a check for about $2,700 to cover fees and closing costs.
Eight months ticked by.
In August 2009, after dozens of unreturned phone calls and unpaid bills, Katherine finally learned that the modification company—and her $2,700—no longer existed. Unfortunately, the Mannings were just one of many families who have been victimized by foreclosure scams during this crisis.
Katherine finally received a modification offer from her mortgage company in October, but it was not enough. Despite their best efforts, the Mannings could not save their home from foreclosure. A sheriff ’s sale was planned for early February 2010.
It’s the harsh reality of the foreclosure crisis— not every story has a happy ending.
“I don’t know where we’re going to go,” said Katherine, who remains thankful for her 21-year marriage and eight healthy children. “That’s the scariest part.”
Greg Staffa, Farmington
Greg Staffa thought he did everthing right.
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| In Crisis: Greg Staffa's 2008 Ford Focus is his current home. |
In 2005, he bought a townhome for less than his pre-approved maximum, and he could easily make the payments with his income as an airline baggage handler.
Four years earlier, he pulled himself out of poverty and homelessness.While living out of his car, he saved enough money to put a down-payment on his first home. According to Staffa, his string of good luck ended when he was injured on the job.
Staffa said that he received workers’ compensation until a doctor suggested that he was injured due to his weight. After the payments ceased, Staffa took the case to court and won.
The airline offered him a desk job but took away the seniority he had earned after working with the company for seven years. He said his new job came with a smaller paycheck that was not enough to make ends meet. He contacted the bank before he fell behind his mortgage payments, and explored various refinancing and modification options.
Soon after, Staffa was laid off.
In April 2009, he met with his bank and was told that he needed to find a job within two months. He did not expect the competition. By June, Minnesota’s unemployment rate had grown to 8.4 percent. Due to his injury, Staffa was limited in the types of jobs he could pursue— he could not lift more than 20 pounds.
On December 18, 2009, Staffa’s home was foreclosed. He put most of his possessions in storage and lives out of his 2008 Ford Focus, where he spent Christmas and his 36th birthday.
Staffa created a website, gregstaffa.com, and a YouTube video in an effort to raise awareness about his story. He also started an e-mail campaign, encouraging sympathetic people to contact bank executives in an effort to get his home back, but it was not enough to keep him in his home.
Today, Staffa uses the social media site, Twitter (@gregstaffa), to provide updates on his job search and the challenges he encounters living out of his car.
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