The Twin Cities has been hit hard by the mortgage crisis, but the effects have been even worse in some rural counties, where rising land values drew many into refinancing and subprime mortgages.
Dave Andert, 46, of rural Duluth, and his wife, Marykay, got what they thought was a good loan for their $215,000 house, but after illness kept Dave from working, they fell behind on their mortgage. Their monthly payment will be $2,300 next year, compared to $1,500 when they got the loan in 2005.
DULUTH -- Theresa Ross had reservations about the subprime mortgage she was offered three years ago but took a chance on the deal. It's a decision she regrets.
A licensed practical nurse with an older, two-bedroom house in Brainerd, Ross said the loan has wreaked havoc on her finances and brought her to the verge of foreclosure. Her monthly mortgage payment nearly doubled recently.
"I don't want to end up homeless because of this," she said.
Ross is part of a rural Minnesota demographic that might be feeling the subprime mortgage crisis more acutely than their urban counterparts.
Until the housing bubble burst, surging property values in rural Minnesota combined with lower, often-stagnant incomes made many rural residents targets for subprime loans, according to experts who have been analyzing foreclosure data.
In rural areas, many residents found themselves house rich but cash poor -- and took advantage of loan offers that allowed them to convert some of their home equity to cash.
"It wasn't people buying homes they couldn't afford," said Dan Williams, whose work as senior program manager for Lutheran Social Service of Minnesota includes counseling rising numbers of homeowners near or in foreclosure. "It was lake and recreational property demand driving up the [local] property values, which created huge markets for cold-calling and 'cash-out' refinancing."
Although average overall foreclosure rates are higher in the seven-county Twin Cities area, six of the seven counties with the highest rates are in outstate Minnesota. Those six -- Chisago, Kanabec, Isanti, Mille Lacs, Sherburne and Wright -- are close enough to the metro area to be influenced by its property values and exurban expansion.
In those counties, an increase in younger home buyers with less wealth may explain some of the foreclosure problem, said Richard Todd, a vice president of the Federal Reserve Bank of Minneapolis.
Just as rural areas lag behind metro areas in fashion and other trends, the subprime wave took longer to reach outstate Minnesota, and it will take longer for the negative effects to fully materialize, Williams said.
And rural residents may have more difficulty getting back on their feet because of their lower incomes and because rural Minnesota has fewer housing options.
'I acted on blind faith'
While sheriff's foreclosure sales shot up 125 percent last year in some metro counties, some of their rural counterparts, such as Rock and Traverse counties, were hit much harder, with increases of more than 200 percent, according to a report by the Greater Minnesota Housing Fund and Housing Link.
In Brainerd, Ross traces her troubles to a decision to price new vinyl windows and siding. When she said a contractor's quote of $21,000 was too steep, he said that a mortgage company he worked with could refinance her house, improvements included.
Ross, 49, who is single, balked at the adjustable 7.7 percent interest rate; at the time she had a fixed rate of 5.4 percent. But the contractor and lender assured her that her home's rising value would allow her to refinance again in a couple of years at a favorable and fixed rate.
She said they also misled her about the projected payment amount, saying it included taxes and insurance when it did not.
Home values stalled, and now Ross is stuck with a mortgage rate at 9 percent, little equity and no chance of refinancing. Her monthly take-home pay barely covers her $1,300 payment, and she ruefully longs for her old payment of $695. Though she quit driving, canceled her cable and Internet service and line dries her clothes, she said she still can't make ends meet.
Even if she sells, the amount she's likely to get won't pay off the mortgage, she said.
"I acted on blind faith that they were sincere and trying to help me, but they were just out to make a buck," Ross said. "Now, if I don't sell the house or get a renter, I'll be in foreclosure in the next few months."
The worst is yet to come
In St. Louis County, which contains Duluth, records show the Sheriff's Office handled 325 foreclosure sales in 2006, up from 219 the year before.
Duluth real-estate agent Michelle Lyons said that since March she's been inundated with requests by banks to sell properties in foreclosure.
"I went from two or three [requests] a month about a year ago to two or three a week now," said Lyons, of Port Cities Realty.
She predicts the numbers will only get worse in the next two years as even more loans adjust to their higher rates and borrowers find themselves unable to refinance.
"Yes, there were predatory lenders," she said. "But it also involved people living above their means, as well as divorces and medical problems."
Some of those in foreclosure "deserve to be foreclosed on," she said, including owners of a Duluth property who trashed their house before vacating. When the bank finally took possession, even the copper pipes had been ripped out, presumably for scrap value.
But others, she said, are good people who were misled by unscrupulous lenders or overtaken by forces beyond their control.
As an example, she cited her clients Dave and Marykay Andert, a rural Duluth couple who are trying to sell to avoid foreclosure.
Dave Andert, 46, is perhaps an unlikely victim of the subprime trap; he once worked as a loan officer, writing mortgages for Beneficial Corp.
So in 2005, when the Anderts sought a $215,000 loan to buy a nearly new home tucked on a wooded lot in Solway Township, he spent four hours carefully reading the terms of the loan, offered by a now-defunct company called New Century.
In particular, Andert said, he made sure he was getting a fixed rate and disability insurance, which was important to him because he suffers from neurological condition that had been giving him chronic headaches.
Confident that he knew the terms, Andert didn't closely read the documents he signed at closing. He now believes a dishonest mortgage loan officer substituted new documents, giving him an adjustable rate and no disability insurance.
Now on long-term disability and bringing in only 40 percent of his previous income, Andert said his family will never afford the $2,300 mortgage payment that will start next year, up from $1,500 when they first got the loan.
Since then, the loan has been sold twice, and he's worked with the latest bank to get extensions to gain time to sell the house.
"We didn't plan on moving again," Andert said. "It's beautiful out here. It gets very emotional some days, to stand looking out my window and seeing the deer and thinking we have to leave."
Larry Oakes • 1-218-727-7344