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					Lost Homes:
How Housing Crisis has hit the
East Side and North End of St. Paul
LOST HOMES:
How the Housing Crisis has hit the East Side and
North End of St. Paul
May 2012




Table of Contents:
Introduction                                                                                4
Subprime Mortgage Lending                                                                   5
Foreclosures                                                                                7
Vacant Houses                                                                               8
Home Values                                                                                 9
Recommendations                                                                           10




                     2720 East 22nd Street Minneapolis, MN 55406 | (612) 333-1260 | www.isaiahmn.org
INTRODUCTION & SUMMARY OF FINDINGS:
The subprime mortgage meltdown has resulted in a record number of foreclosures and plunged the United
States into the worst financial crisis since the Great Depression. St. Paul has not been immune from this
crisis, and the North End and East Side neighborhoods have been hit the worst.
   Subprime lenders targeted lower-income and minority homeowners for high cost loans. In some cases, the
   subprime lenders were owned or bankrolled by mainstream financial institutions such as Wells Fargo and
   US Bank, whose loans were more likely to be in predominantly white neighborhoods.
           One out of every six of the refinance loans made by Wells Fargo on the East Side and North End were
           made by its finance company – Wells Fargo Financial. In contrast, Well Fargo Financial accounted for
           just one out of every fourteen of Wells Fargo’s refinances in the Twin Cities metro area.1

   Subprime loans stripped homeowners of their wealth and led to an epidemic of foreclosures.
           The number of foreclosures in Ramsey County skyrocketed from 632 in 2005 to a peak of over 3,000 in
           2008.2 Although the number of foreclosures has passed its peak, it appears that there will be thousands
           more in the next few years.

           Since last April, the East Side and North End have had more foreclosure filings and sales than other
           neighborhoods in St. Paul.3

   Foreclosures ravaged neighborhoods and left behind a trail of vacant homes.
           There are over 1,200 vacant residential buildings in St. Paul.4
               Ward 7 has more vacant buildings than any other ward in the city.5
               Over 60% of the vacant residential buildings are in Wards 5, 6, and 7.6

   The unprecedented numbers of foreclosures and vacant homes caused a steep and continuing
   decline in home values throughout the city, but especially in minority neighborhoods.
           Homes in the East Side, North End, and Thomas-Dale neighborhoods experienced the greatest loss
           of value, dropping 50% since 2006, whereas homes in the Mac-Groveland, Highland, and St. Anthony
           Park neighborhoods lost the smallest percentage of their value, less than 20%.7




LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul                               4
SUBPRIME MORTGAGE LENDING
A number of reports have documented the startling racial This created a shameful pattern of profiteering; preying on
and economic disparities in mortgage lending. Residents the most vulnerable among us, and creating a devastating
of low-income and minority neighborhoods were much impact on already-struggling neighborhoods.
more likely than residents in upper income and predomi-
nantly white neighborhoods to receive a high-cost subprime      o One out of every six of the refinance loans made by Wells
loan. 8
                                                                Fargo on the East Side and North End of St. Paul (Wards 5,
                                                                6, and 7) were made by its finance company – Wells Fargo
The vast majority of subprime loans were for refinances,        Financial. In contrast, Well Fargo Financial accounted for
rather than home purchases. For instance, from 2005 to          just one out of every fourteen of Wells Fargo’s refinances
2007, Wells Fargo Financial made a total of just two home       in the Twin Cities metro area.10
purchase loans in the entire Twin Cities metro area.9 Sub-
prime loans were promoted as a way to consolidate debt, Wells Fargo
provide money for home improvements, or for household
or personal needs, rather than being sought by borrowers as In July 2011, the Federal Reserve Board assessed an $85
a way to lower their interest rates or lock in a fixed rate.  million civil penalty against Wells Fargo, the largest fine the
                                                              Federal Reserve has ever imposed in a consumer case.11 The
There are circumstances where refinancing to use some Federal Reserve charged that between 2004-2008 Wells
of the equity in one’s home makes sense, but cash-out re- Fargo Financial steered customers into more expensive sub-
finances were rife with potential for abuse by lenders. Too prime loans even though they qualified for better rates. As
often homeowners with significant amounts of equity were part of its settlement with the Federal Reserve, Wells Fargo
convinced to refinance under conditions that left them con- will have to repay up to $200 million to customers that it
siderably worse off than they were before. In some cases, overcharged.12
homeowners were sold refinance loans which produced
just a few thousand dollars in cash at closing, but which re- Previously, the Illinois Attorney General sued Wells Fargo
financed their existing mortgages at higher rates, high fees, for steering African-American and Latino homeowners to
and often with abusive loan terms.                            higher cost subprime mortgages while giving white bor-
                                                              rowers who had similar incomes lower cost loans. The suit
While subprime lenders sometimes appeared to be small- charged that “Wells Fargo drained wealth from families and
time storefront operators, the masters behind subprime neighborhoods and added to the stockpile of boarded-up
lending could be found among some of the world’s largest homes . . .” 13
financial institutions. Sometimes these institutions had
direct ownership of subprime lending subsidiaries, such as An analysis of Wells Fargo’s lending practices in the Twin
Wells Fargo and Wells Fargo Financial. In other cases, these Cities suggests a pattern of subprime lending with dispa-
institutions bankrolled subprime lenders by investing in rate impacts on minority neighborhoods. Wells Fargo has
them directly, such as with US Bank and New Century Fi- served upper income and predominantly white neighbor-
nancial.                                                      hoods through its bank, providing prime loans with good
                                                              terms and low rates. In contrast, Wells Fargo has served
The refinance loans made through the bank had greater con- low-to-moderate income and minority neighborhoods dis-
centrations in predominantly white neighborhoods, while proportionately through its finance company, Wells Fargo
the loans made through the subprime lender were more Financial, which makes higher rate subprime loans.
concentrated in lower-income and minority neighborhoods.




LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul                                         5
US Bank

US Bank was a major investor in New Century Financial,
the poster child for bad practices in the mortgage indus-
try. By 2007, when the company filed for bankruptcy, New
Century was the second largest subprime mortgage lender
in the country.14

In 1998 and 1999 when it was difficult for subprime lenders
to raise capital, US Bank came to New Century’s rescue and
invested $40 million in the company. US Bank reaped a
profit of nearly $18 million from this investment within just
a few years.15

In contrast to US Bank, New Century, which made loans
with high rates and enormous fees, made a large percent-
age of its loans to minority neighborhoods. From 2004 to
2006, New Century’s last year of business, almost half of the
refinances New Century made in St. Paul were in minority
neighborhoods. Whereas just 14% of US Bank’s refinances
in St. Paul were in minority neighborhoods.16

Wells Fargo & Wells Fargo Financial Refinance Loans in St. Paul:17




US Bank & New Century Refinance Loans in St. Paul:




LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul   6
FORECLOSURES
The number of foreclosures in Ramsey County sky- The regulators found that mortgage servicers were
rocketed from 632 in 2005 to a peak of over 3,000 in only reaching a minority of delinquent homeowners
2008. Although the number of foreclosures has passed with their foreclosure prevention efforts.
its peak, Ramsey County still experienced over three
times more foreclosures in 2011 than in 2005, and it        “Nearly three years into the foreclosure crisis, we
appears that there will be thousands more in the next       find that more than 60% of homeowners with seri-
few years.                                                  ously delinquent loans are still not involved in any
                                                            loss mitigation activity.”24
A recent Star Tribune article noted that there may be
an increase in foreclosures coming in Minnesota. The As the foreclosure crisis has exploded, mortgage ser-
article attributed the decline in foreclosures in part to vicers have failed to adequately meet the number of
the hold that lenders put on foreclosures due to the delinquent homeowners. In a recent GAO survey of
robo-signing scandal, and quoted a real estate expert non-profit housing counselors, for example, seventy-
who said that there’s “definitely another round of fore- six percent of the counselors reported that overall
closure coming down the pipeline.”18                      their clients had a “negative” or “very negative” expe-
Foreclosures in Ramsey County19                           rience with the mortgage servicers. The most com-
                                                          monly cited problems were of homeowners receiving
  Year:                          2005 2008 2011           inconsistent or confusing information, speaking to a
  Number of Sheriff ’s Sales: 632        3,023 2,078      different representative each time they called, of ser-
                                                          vicers losing their paperwork, and of the decision-
The areas in the Twin Cities that have been the most making process taking too long.25
affected by foreclosures are the North Side of Min-
neapolis and the Payne-Phalen neighborhood on St. Even worse, the Office of the Comptroller of the Cur-
Paul’s East Side.20 In St. Paul, the zip codes with the rency (OCC) conducted examinations of the foreclo-
most foreclosure activity since last April are all on the sure processes of US Bank and Wells Fargo and found
East Side.21                                              that both banks engaged in unsafe or unsound prac-
                                                          tices26, such as:
  Zip Code         Foreclosure since April 2011
   55106                406                               •	Filing legal affidavits in which bank employees made
   55119                229                               assertions that they claimed, falsely, were based on
   55117                214                               personal knowledge or review of the relevant records
According to a national study by the Center for Re- •	Filing numerous affidavits courts that were not
sponsible Lending approximately 8 percent of Af- signed in the presence of a notary
rican-American and Latino families have lost their •	Failing to devote adequate oversight, internal con-
homes to foreclosure compared to 4.5 percent of white trols, policies and procedures to their foreclosure pro-
families.22                                               cesses
                                                          •	Failing to sufficiently oversee outside lawyers and
Many of these foreclosures can and should be avoided. other third-parties handling foreclosures
A report from state regulators stated:
                                                          In addition the OCC found that Well Fargo:
  “[T]oo many homeowners experience foreclosure •	Initiated foreclosures without always ensuring that
  when finding an alternative solution would be in the mortgage documents met legal requirements
  interest of both the homeowner and the mortgage •	Failed to devote sufficient financial, staffing and man-
  holder. Preventing these unnecessary foreclosures agerial resources to its foreclosure processes
  would help not only the struggling homeowners and
  mortgage investors, but also the neighborhoods and
  local governments that bear the indirect costs of
  foreclosures.”23
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul                             7
VACANT HOUSES
Foreclosures not only impact the individual homeowners           where he had gone to settle a drug debt. In December, a
but also local governments, neighbors, and other property        homeless man died after starting a fire in a vacant house in
owners. Especially when a foreclosure leaves a home vacant       Minneapolis.28
and unsecured, it can cost cities and counties tens of thou-
sands of dollars.                                              In contrast to St. Paul, Minneapolis has many fewer vacant
                                                               buildings and charges property owners a much higher va-
Foreclosures result in decreased revenue for cities and coun- cant building fee.
ties through lower property values, delayed and uncollected
taxes, and unpaid services. At the same time that foreclosures City Properties on City’s Vacant Building List29
mean less revenue for cities and counties, they also impose
additional requirements to those cities and counties for in-                    2004 2008 2012
creased policing, building inspection, demolition, property        St. Paul     370     2,000 1,291
maintenance, and managing the foreclosure process.             Minneapolis 286          857    851

After peaking in 2008, the number of vacant houses has Vacant Building Registration Fee30
started to decline, but there are still almost four times more     St. Paul      $1,200
properties on St. Paul’s vacant building list than there were Minneapolis $6,985
in 2004.
                                                               If St. Paul’s vacant building registration fee were the same as
Vacant and Boarded Buildings in St. Paul        27
                                                               that in Minneapolis, it would result in over $7 million a year
Year             2004 2008 2012                                in extra revenue for St. Paul.31
Buildings        370      2,000 1,291

The vacant buildings are disproportionately concentrated
on the North End and East Side of St. Paul.

Over sixty-percent of the vacant residential buildings are in
Wards 5, 6, and 7.

The largest number of vacant residential buildings in St.
Paul is in Ward 7.

Ward    #Vacant Residential Bldgs         % of total vacant
 7          293                           24.1%
 6          238                           19.6%
 1          228                           18.7%
 5          226                           18.6%
 2          143                           11.8%
 4           63                           5.2%
 3           22                           1.8%

Vacant homes have been the site of numerous crimes. In ad-
dition to burglary and trespassing, there have been several
high profile incidents in St. Paul recently. In March, police
charged nine men and teens with dragging a 14 year old girl
into a vacant home and sexually assaulting her. That same
month, a man was killed on the porch of a vacant home

LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul                                           8
HOME VALUES
The unprecedented numbers of foreclosures and vacant             A recent report from the Pew Research Center found that
homes caused a steep and continuing decline in home val-         the bursting housing bubble and the decline in home values
ues throughout the city, but especially in minority neigh-       and equity resulted in decreases in average American house-
borhoods.                                                        hold wealth of:33
                                                                 •	66% for Latinos from $18,400 to $6,300
From 2005 to 2009 the median level of home equity that           •	53% for African-Americans from $12,100 to $5,700
Latino homeowners had nationally was cut in half from            •	16% for whites from $135,000 to $113,000
$99,983 to $49,145. For African-American homeowners,
the median level of home equity declined from $76,910 to In St. Paul, homes in the Dayton’s Bluff, Payne-Phalen,
$59,000 during this period. For white homeowners, it de- North End, and Thomas-Dale neighborhoods experienced
creased from $115,364 to $95,000.32                      the greatest loss of value, dropping 50% since 2006, whereas
                                                         homes in the Mac-Groveland, Highland, and St. Anthony
                                                                    Park neighborhoods lost the smallest percentage,
                                                                    dropping less than 20%.34

                                                                            In total, St. Paul has lost over $6.1 billion in home
                                                                            value, which could drain $46.3 million in annual
                                                                            tax revenue from Ramsey County and $15.5 mil-
                                                                            lion in annual tax revenue from the city.35




                                              Single Family                             Change from
                                              Home Prices                               2006 to 2011
           Neighborhood                       April 2006       January 2012              Dollar %
           Thomas Dale                        $168,000         $77,600                  -$90,400         -53.8%
           Dayton’s Bluff                     $170,500         $81,900                  -$88,600         -52.0%
           Payne Phalen                       $182,000         $93,200                  -$88,800         -48.8%
           North End                          $180,500         $95,200                  -$85,200         -47.3%
           Greater East Side                  $186,50          $99,900                  -$86,600         -46.4%
           Battle Creek                       $207,500         $113,200                 -$94,300         -45.5%
           St. Paul City                      $205,300         $122,600                 -$82,700         -40.3%
           West Side                          $187,000         $112,400                 -$74,600         -40.0%
           Summit-University                  $212,800         $133,500                 -$79,300         -37.3%
           West 7th                           $186,500         $117,400                 -$69,100         -37.1%
           Midway                             $196,500         $130,600                 -$65,900         -33.5%
           Como                               $233,000         $167,600                 -$65,400         -28.1%
           Merriam Park                       $305,100         $225,500                 -$79,600         -26.1%
           St. Anthony                        $341,500         $268,900                 -$72,600         -21.3%
           Macalester-Groveland               $306,000         $245,500                 -$60,500         -19.8%
           Highland                           $301,500         $247,000                 -$54,500         -18.1%
           Summit Hill                        $490,200         $408,200                 -$82,000         -16.7%
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul                                              9
RECOMMENDATIONS

1) The state of Minnesota, counties, and cities should 3) Local governments, school boards, and public agen-
adopt a foreclosure mediation program to prevent un- cies should require that any banks they do business with
necessary foreclosures.                                       meet responsible lender criteria that includes using best
                                                              practices for foreclosure prevention.
There is growing recognition of the effectiveness of foreclo-
sure mediation programs in preventing unnecessary fore- 4) Local governments, school boards, and public agen-
closures. The number of states and municipalities that have cies should require that any banks they do business pub-
such programs continues to grow, and there are now juris- licly disclose information regarding its foreclosures, in-
dictions in 24 states that have foreclosure mediation.        cluding:
                                                               a. The number of homeowners eligible for loan modifica-
Foreclosure mediation benefits all of the involved parties:    tions
- Servicers avoid a long and costly foreclosure process since b. The number that received or were denied permanent
more than 70 percent of mediated cases reach a settle- modifications
ment.36                                                        c. The principal and/or rate reduction in each modifica-
- More than half of homeowners in mediated cases get to tion
keep their homes, while those for whom that is not a sus- d. A breakdown for each of the above categories by the race,
tainable option also benefit by negotiating a “graceful exit” ethnicity, and census tract of the
in how and when they move out.                                 homeowners.
- For government, mediation can reduce the number of va-
cant homes and stabilizes property values and tax revenue. 5) Mortgage servicers should comply with the following
                                                                    best practices for foreclosure prevention:
In 2009 the Minnesota legislature passed the Homeowner-
Lender Mediation Act which would have required lenders          a. Stop foreclosure proceedings while they are evaluating a
to offer homeowners the opportunity to participate in non-      borrower’s eligibility for a loan modification or other fore-
binding mediation before the lender could foreclose, how-       closure prevention options
ever Governor Time Pawlenty vetoed the bill.37                  b. Respond within 72 hours to requests or inquiries about
                                                                loan modifications
Under the Act, lenders would have been required to serve c. Ensure that the loan modification process takes less than
a mediation notice to the homeowner and filed proof of it 30 days
with the Attorney General’s office. Homeowners would d. Modify troubled loans so that they are for no more than
have 20 days after this to file a request for mediation. If the the value of the home
homeowner does not request it, then the lender could pro- e. Allow tenants of foreclosed properties to continue to rent
ceed with the foreclosure.                                      the property until it is sold
                                                                f. Take steps to ensure that its loans are not being used for
Although a state level mediation program would be optimal property flipping or foreclosure rescue scams.
in that it could benefit from an economy of scale and would
serve the largest number of homeowners, cities and coun-
ties can implement their own mediation programs.

2) Minneapolis charges property owners $6,985 annu-
ally to register vacant buildings, while St. Paul charges
just $1,200.
The city of St. Paul should increase its vacant building regis-
tration fee to offset the significant costs to the city of vacant
buildings, but also to reduce the number of vacant buildings
by spurring owners to sell or rehab their properties.

LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul                                        10
WORKS CITED
    1 Home Mortgage Disclosure Act data from 2004-2006
    2 “Foreclosures in Minnesota: A Report Based on County Sheriff ’s Sale Data,” February 15, 2010, Housing Link, p. 8
    3 Realtytrac.com, Foreclosure statistics for pre-foreclosure, auction, and bank-owned properties,
    4 Data from city of St. Paul Vacant Building Registration List March 12, 2012, 846 single family, 307 duplexes, 64 multi-family
    5 Data from city of St. Paul Vacant Building Registration List March 12, 2012
    6 Data from city of St. Paul Vacant Building Registration List March 12, 2012
    7 Zillow Home Values Index, calculated March 21, 2012
    8 “Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures,” Debbie Gruenstein Bocian, Wei Li, Carolina Reid, Center for
      Responsible Lending, November 2011, p. 11. “Income is No Shield Part III. Assessing the Double Burden: Examining Racial and Gender
      Disparities in Mortgage Lending,” National Council of Negro Women and National Community Reinvestment Coalition, June 2009, p. 1.
      “Unequal Opportunity Lenders? Analyzing Racial Disparities in Big Banks’ Higher-Priced Lending,” Andrew Jakabovics and Jeff Chapman,
      Center for American Progress, September 2009, p.1.
    9 Home Mortgage Disclosure Act data
   10 Home Mortgage Disclosure Act data
   11 “Wells Fargo, Countrywide Mortgage Settlements Give Homeowners a Bit of Relief,” Daily Finance on AOL.com, Catherine New, July 22,
      2011
   12 Up to 10,000 customers, up to $20,000 each, equals $200 million
   13 July 31, 2009 Press Release, “Madigan Sues Wells Fargo for Discriminatory and Deceptive Lending Practices”
   14 “New Century, Biggest Subprime Casualty, Goes Bankrupt”, Bloomberg, April 2, 2007, Bradley Keoun and Steven Church.
   15 “U.S. Bancorp Profits Handsomely from Its Investment in New Century,” National Mortgage News, March 11, 2002, Brad Finkelstein
   16 Home Mortgage Disclosure Act data
   17 Based on Home Mortgage Disclosure Act (HMDA) data for first lien conventional refinance loans
   18 “More home foreclosures on horizon in Minnesota,” Star Tribune, Jim Buchta, April 16, 2012
   19 “Foreclosures in Minnesota: A Report Based on County Sheriff ’s Sale Data,” February 15, 2010, Housing Link, p. 8, and “2011 Foreclosures
      in Minnesota: A Report Based on County Sheriff ’s Sales Data”, February 24, 2012, p. 5
   20 “Fostering Equitable Foreclosure Recovery,” Sarah Treuhaft, Kalima Rose, and Jennifer Tran, Policy Link, January 2012, p. 14
   21 Realty Trac. Includes pre-foreclosure notices and sheriff ’s sales
   22 “Speculators, Not CRA, Behind Foreclosures in Black Neighborhoods,” September 7, 2011, American Banker, John I. Gilderbloom and
      Gregory D. Squires
   23 “Analysis of Mortgage Servicing Performance”, Data Report No. 4, January 2010, State Foreclosure Prevention Working Group
   24 “Redefault Rates Improve for Recent Loan Modifications,” State Foreclosure Prevention Working Group Memorandum on Loan Modifica-
      tion Performance, August 2010
   25 GAO-11-367R Survey of Housing Counselors about HAMP, May 26, 2011, United States General Accounting Office
   26 United States of America, Department of the Treasury, Comptroller of the Currency, Consent Order AA-EC-11-18 “In the Matter of US
      Bank National Association”, and United States of America, Department of the Treasury, Comptroller of the Currency, Consent Order AA-
      EC-11-19 “In the Matter of Wells Fargo Bank N.A.”
   27 “In housing meltdown, cities turn into buyers,” Star Tribune, Chris Havens, February 7, 2010 and City of St. Paul vacant building list as of
      March 1, 2012, http://www.stpaul.gov/index.aspx?NID=2272
   28 “Vacant houses not always emply,” Star Tribune, April 30, 2012, Chao Xiong.
   29 “In housing meltdown, cities using federal money to address foreclosures,” Star Tribune, September 18, 2010, Chris Havens, City of St. Paul
      vacant building list as of March 1, 2012, http://www.stpaul.gov/index.aspx?NID=2272 , and Minneapolis List of Vacant and Condemned
      Properties as March 2, 2012,
      http://www.ci.minneapolis.mn.us/www/groups/public/@regservices/documents/webcontent/convert_254314.pdf
   30 Minneapolis Director’s Fee Schedule, p. 6
   31 The Minneapolis annual fee is $5,546 higher than the St. Paul fee. There are 1,291 vacant buildings current on St. Paul’s vacant building
      registration list. $5,546 x 1,291 = $7,159,886
   32 “Wealth Gap Rise to Record Highs Between Whites, Blacks, Hispanics,” Pew Research Center, July 26, 2011
   33 “Wealth Gap Rise to Record Highs Between Whites, Blacks, Hispanics,” Pew Research Center, July 26, 2011
   34 Zillow Home Values Index, calculated March 21, 2012
   35 According to Zillow.com, the value of the average home in St. Paul has declined $82,700 from April 2006 to January 2012. There are 74,000
      single family, duplex, triplex, condo units, and townhomes in the city of St. Paul, according to the Wilder Research Center’s “Census Facts.”
      This calculates to a total of $6.1 billion in total lost home value. Using the Ramsey County tax rate of 1.01% of a home’s value, the loss in
      value means $61.8 million in lost property taxes. The city receives about 25% of the total property tax. http://www.stpaul.gov/Document-
      View.aspx?DID=17200
   36 Walk the Talk: Best Practices on the Road to Automatic Foreclosure Mediation,” Alon Cohen, Center for American Progress, November
      2010
   37 “Minnesota AG to push for Foreclosure Mediation,” Housing Wire, Jon Prior, January 8, 2010

LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul                                                            10
This study was published by ISAIAH, a faith-based coalition of more than 100
member congregations that works for economic and racial justice throughout the
State of Minnesota.
2720 East 22nd Street Minneapolis, MN 55406 | (612) 333-1260 | www.isaiahmn.org

				
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