The foreclosure boom appears to have peaked in first-hit and worst-hit Minneapolis -- even while it continues unabated in the rest of Hennepin County.

St. Paul also reports new sheriff's sales dropping in recent months.

New foreclosures in Minneapolis dropped 10 percent from a year ago during August. That's the second month of the last four in which foreclosures have been down from a year earlier.

"It's done in north Minneapolis," said one neighborhood leader, Roberta Englund, who has been in the center of the fight against mortgage fraud there. "I'm not saying there won't be any, but the north Minneapolis neighborhoods are substantially foreclosed. I don't think that we will see an uptick."

St. Paul reports a 16 percent drop in August, and a scant drop in September.

"We're not sure if that's a trend, but we're hoping it is," said Natalie Fedie, a spokeswoman for the city.

The reason for the drop, experts say, could be simply that the supply of houses headed toward foreclosure is drying up. But they also point out that the problems stemming from the foreclosures are not going away any time soon.

For the first eight months of 2008, sheriff's foreclosure sales for Minneapolis are up 15 percent from 2007. But for the most recent four-month period, they're up only 3 percent, compared with an increase of 72 percent in the rest of the county. St. Paul's foreclosures are up 11 percent for the year to date.

Those who deal with foreclosures daily say that the foreclosure epidemic seems to be stalling in Minneapolis in part because it got started there earlier.

Foreclosure prevention counselors say that poorer neighborhoods that were redlined out of conventional credit for years were the first targets of subprime lenders who sometimes offered loans with predatory features that made foreclosures more likely.

Moreover, after the foreclosure of thousands of Minneapolis homes, especially on the North Side, the supply is dwindling, some foreclosure specialists say.

"You look at some of these streets in north Minneapolis and 75 percent of the houses have been foreclosed, and there's only so many houses you can foreclose on," said Brandon Nessen, executive director of Minnesota ACORN, an organization that counsels people facing foreclosure.

Some housing specialists warn that although the number of foreclosures has plateaued in Minneapolis, the impact has not. That's because people who have been foreclosed on have up to six months to vacate their house after the sheriff's sale. So more houses are continuing to go vacant and become subject to vandalism even if foreclosures are leveling, according to Cheryl Peterson, foreclosure prevention manager for Twin Cities Habitat for Humanity.

The glut of vacant houses is overwhelming the government and nonprofit response because ordinary buyers are finding it hard to get mortgages during the Wall Street panic over soured subprime portfolios.

In Minneapolis, more than 7,500 properties have been auctioned by the Hennepin County Sheriff's Office since the beginning of 2006. In some cases, owners used the statutory six-month redemption period after the sale to refinance or sell the properties to stave off losing them. But most houses went to the hands of banks and sat empty, sometimes creating neighborhood eyesores or losing copper piping and other features to theft.

Minneapolis has used $11 million in state money and another $5.6 million just obtained through federal legislation to finance the purchase, rehab and resale of homes, mostly through the Greater Metropolitan Housing Corp.

GMHC has bought 78 homes, rehabbed 38 and resold 19, while the city's new Minneapolis Advantage program has helped another 45 people buy foreclosed homes. But those are a drop in the bucket compared with the more than 900 properties on the city's boarded and vacant properties list.

The credit crunch is forcing people to turn to a traditional tool for home finance that offers fewer protections for homeowners, the contract for deed. Although GMHC has made some use of this tool to bypass dried-up mortgage availability, some like Englund are concerned about property investors who are picking up devalued homes and selling them on contracts, often unrecorded despite a state law requiring that. Homeowners who miss contract payments lose their homes much quicker than those with mortgages. Peterson said

Steve Brandt • 612-673-4438