There was a pandemic-fueled uptick in the number of Twin Cities homeowners unable to pay their mortgage last year, but government assistance programs kept foreclosure filings throughout the metro relatively scarce.
Last year, 3,136 households in the metro area received a foreclosure notice — a 210% increase from 2021 but a 26% decrease compared to 2018, according to a year-end report from ATTOM Data Solutions.
By comparison, foreclosures in the Twin Cities last year were 89% lower than the peak of the housing market crash in 2009.
The Twin Cities' foreclosure rate in 2022 was slightly lower than the national average, said Rick Sharga, executive vice president of market intelligence at ATTOM.
Sharga said that nationally — and in Minnesota — foreclosure activity is gradually climbing back to "normal" levels after two years of artificially low activity because of government programs aimed at preventing COVID-related defaults.
"So, it's likely that we'll see overall foreclosure numbers increase slightly over the course of 2023," he said. "But there's no indication that we're in any danger of another foreclosure tsunami like the one that hit the market back in 2008."
Throughout the metro last year, one out of every 482 housing units was in foreclosure compared with national rate of one per every 433.
He noted that delinquency rates are lower than they were before the pandemic, loan quality is "excellent" and homeowners have a record $29 trillion in equity, according to Freddie Mac. That equity provides a cushion in the event of short-term financial problems.
The vast majority of those who have fallen behind on their mortgage have a comfortable amount of equity in their home, Sharga said. That's a contrast to the late 2000s when record numbers of homeowners had a mortgage that exceeded the value of their house, forcing them to sell for less than they owed. That glut of "short sales" lingered for years, creating a drag on home values.
"Unlike foreclosure activity during the Great Recession, the majority of homes in foreclosure are not being repossessed by lenders," he said.
Today, 93% of the homeowners with a mortgage in foreclosure have equity in their home, which many are leveraging to refinance or sell their home at a profit — avoiding a foreclosure.
Sharga expects that trend to continue into 2023.
In the Twin Cities metro, foreclosures (bank-owned properties) and short sales represent a tiny fraction of the houses that are now for sale. During November, there were only 26 lender-owned new listings in the metro, just one more than the year before, according to the Minneapolis Area Realtors. There were only four short sales, half as many as the year before.
Those new listings brought the total of active lender-owned listings to 72 compared with 56 the year before. There were 17 short sales on the market, nearly half as many as the year before
.
The median price of all distressed sale closings during the month was a little more than $180,000, nearly half the metro-wide median sale price for all properties and an indication that the owners of these properties were likely lower-income families.
Tony Weick, president of Twin Cities-based Bell Bank Mortgage, said that while overall delinquency levels remain low compared to historical standards, the uptick is not surprising.
"When economies begin to slow, or possibly approach a recession, that often leads to reduced earnings or even job loss for many, which, of course, can cause enormous challenges for people's financial stability," he said.
He attributes the slight uptick to some pandemic-related forbearance programs being exhausted and the expiration of certain foreclosure moratoriums.
In Minnesota, the HomeHelpMN program is aimed at helping those behind on their mortgage or worried about foreclosure because of the pandemic. It offers up to $50,000 in assistance as long as funding holds out. The program will also accept past-due expenses incurred before Jan. 21, 2020, if the household experienced a pandemic-related financial hardship.
As of Jan. 6, more than 8,000 people applied for assistance and only 3,427 applications were funded. That accounted for just 42.5% of all available funds.
Weick said that while ongoing inflationary pressures are making it difficult for more people to stay current on their mortgage, he doesn't expect a repeat of what happened in the wake of the Great Recession.
"While the industry is generally expecting a moderate increase in delinquency levels," he said, "there is not a strong concern of a drastic increase, which would lead to wider spread negative impacts on the marketplace."
Sharga agrees.
"If the U.S. economy enters a recession this year leading to higher levels of unemployment," Sharga said. "That could lead to a bump in foreclosure activity, but it's too soon to forecast that at this point."
