Minnesota foreclosures dropped to about 23,020 cases in 2009, a decline of 12 percent from 2008s 23,300 foreclosures. But the decline gives little reason to celebrate. The 23,020 Minnesota foreclosures last year constitutes 1.3 percent of the total number of residential units in the state. This is triple the historical average for foreclosures as a percentage of total residences.
Contextualized in this way, it becomes clear that celebrating a 12 percent decline in Minnesota foreclosures in 2009 compared to the previous 12 months may be premature. This is particularly the case when one considers that the number of homeowners who are currently behind on their payments but have not yet been served with a foreclosure notice did not drop at all year to year.
The biggest problem in the state is high unemployment. Employment state-wide has been declining for some time and foreclosure rate for residential properties actually started to increase in 2005, long before the housing bubble burst and the housing crisis began in 2008. According to the government of Minnesota fully one home in twenty has gone through foreclosure over the past five years.
A close look at what lies behind the 12 percent drop in Minnesota foreclosures totals for 2009 gives even less cause for optimism. Interest rates are threatening to rise as the federal government struggles with the largest deficit in the history of human civilization. Once this begins, a new wave of defaults will likely engulf the system. Additionally, those homeowners who were saved by mortgage restructurings underwritten by federal guarantees may well see their restructured mortgages restructured upward when renewal time comes in an environment of higher interest and a tighter money supply.
Another factor in lowering the Minnesota foreclosures rate was the mortgage modification program instituted by banks at the insistence of the Obama administration. The goal of the mortgage modification program is to lower payments to no more than 30 percent of household income. While this program has saved many homestead class units from foreclosure, it has not had as large an affect as hoped. This is because homeowners who have lost their jobs are frequently unable to pay for food and utilities, much less a mortgage.
The June 15, 2009, amendments to Minnesota foreclosures laws has also been a factor in the 2009 foreclosure rate decline. However, the reduction of the redemption period from 6 months to 5 weeks for those homeowners who opt to have the forced sale postponed for 5 months means that those who are unsuccessful in restoring their incomes and catching up on their payments practically guarantees a forced personal bankruptcy as lenders struggle to recoup what they can.
According the Minnesota governments own findings, the unemployment rate in the state will at best decline by . 5 percent over the course of 2010. While it is good news that unemployment rate seems to have bottomed out, there will continue to be foreclosures at least double to triple the historical average over the next 4 quarters. It is figures and scenarios like this that have some predicting the Minnesota housing crises may continue to the point where it rivals the the Great Depression.
On the upside, there has never been a better time to buy investment properties. In a practice that is still rare but on the upswing, speculators are approaching homeowners who have been granted a postponement of a forced sale in Minnesota foreclosures proceedings. The investors offer to buy the home for the amount owing on the mortgage and then rent the property back to the current owner at a rate they can afford. This may well be one of the few cases where predatory speculation actually works to improve a situation rather than make it worse.
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