Foreclosure, often seen as an inner-city problem, is creeping into Hennepin County's middle-class suburbs.
In four of the last five months, the suburbs have seen more foreclosure auctions than Minneapolis. That's a change from the previous year, when Minneapolis dominated foreclosures in all but two months.
In February, more than 57 percent of county foreclosures were in the suburbs, the highest suburban share in at least the last 19 months.
"It's truly a phenomenon that's not class specific," said Daryl Coppoletti, who as regional planning coordinator for the Hennepin South Services Cooperative analyzes the county sheriff's data for cities like Bloomington, Richfield and Eden Prairie.
In the last year, Brooklyn Park has seen almost 700 foreclosures, more than any other Hennepin County suburb.
It is followed by Brooklyn Center, Bloomington, Maple Grove, Eden Prairie, Crystal, Richfield and Plymouth, Champlin and Minnetonka.
The list is striking because it includes newer communities like Maple Grove and Eden Prairie, upscale suburbs like Minnetonka and post-World War II rambler cities like Richfield and Crystal.
No one is sure why this is occurring. Experts in housing and finance say that if the increasing number of foreclosures in suburbs is truly a trend, it may be linked to the maturation of so-called "near-prime" loans that are one step above the subprime loans that hit north Minneapolis so hard.
Near-prime loans generally are aimed at people with mediocre but not poor credit histories and at people who are perhaps buying more home than they can afford.
The Federal Reserve Board estimates that in Hennepin County, homeowners have taken out roughly 13,000 subprime mortgages and about 9,800 near-prime mortgages.
Pick a payment
Some near-prime loans require no proof of the borrower's income. Others allow interest-only payments for a period of time, or let customers "pick a payment" from a list of amounts that can vary by hundreds of dollars.
Such loans often adjust after a couple of years, bouncing borrowers up to monthly payments that are hundreds or even thousands of dollars higher than what they initially paid. Homeowners who have been paying only interest or picking their payment may find that in a time of declining home values, they owe more on their mortgage than their house is worth.
"You saw a lot of these mortgages used in suburban and exurban areas and in new subdivisions," said Mark Ireland, an attorney who works on foreclosure prevention for the Foreclosure Relief Law Project in St. Paul.
While in 2002 just 5 percent of home loans nationally fell into this near-prime category, by 2006 they made up about 20 percent of home loans, according to a 2007 Credit Suisse report.
"Some people would say these are people who willfully bit off more than they could afford," Ireland said. "But there are also a lot of people who were looking at homes [when values were escalating] who thought, if I don't buy a house now, I'll never own a home so I need to take a chance."
Jeff Crump, a University of Minnesota housing studies professor, said the economy may be pushing suburban foreclosure rates.
"Up until now, foreclosures have been driven mainly by irresponsible lending," he said. "But now, if we go into a recession -- and it looks like we're going to go into one -- people could be losing their homes because they're losing their jobs. ...
"People were sold these with the idea that the finances don't matter, because eventually you'll refinance anyway. Now, with falling house values, you can't refinance because you might owe more than the home is worth."
A neighborhood cancer
For cities, foreclosures can mean vacant, boarded-up buildings that become targets for squatters or vandals. They can turn into scars on a street, eroding the confidence of other homeowners in a neighborhood.
In Brooklyn Park, where in the last 19 months foreclosure has hit more than 4 percent of the city's homes, the city has tried to be proactive. Mailings on avoiding foreclosure have gone out to residents. One day a week, loan counselors sit in a City Hall office, ready to talk to people who need help. A few people come in, but more should, said city Community Development Director Bob Schreier.
"People don't want to admit this is happening to them," he said. "If they'd come in and talk to loan counselors, there's a chance that this can be fixed."
The city gets lists of foreclosed properties from the county, sends police and public health officials out to check on homes and sets up files on each property, Schreier said. Houses are discreetly tagged, disconnected from utilities and boarded up if necessary.
Schreier thinks the high foreclosure rates in his city are partly linked to investors scooping up as many as 1,500 houses when housing prices were rising. The city is working with Realtors to try to get foreclosed homes back on the market. In April, the City Council will consider a program to offer improvement loans at below-market rates for buyers willing to rehab foreclosed homes.
Bloomington's problem is much smaller than Brooklyn Park's, with 220 foreclosed properties in the past year. The city's emphasis has been on watching properties to make sure they don't fall into disrepair or become health nuisances, said Larry Lee, director of community development. Only about 5 percent of foreclosed properties present problems, about the same as other properties in Bloomington, he said.
"We've been watching it very closely, and it doesn't seem to be a threat to our neighborhoods yet," Lee said.
Richfield also is keeping a close eye on foreclosures, which totalled 124 in the past year. The problem, said John Stark, interim director of community development, is that by the time the city finds out about a foreclosure, it's usually too late to help.
"This problem is bigger than any one city," he said. "I talk with my peers in other communities and in the housing world, [and] this is the No. 1 problem. We're just waiting to see where the numbers go."
Mary Jane Smetanka • 612-673-7380