Twin Cities Habitat for Humanity

Last week, three of Jane’s clients did not pay her. As a result, she brought in no income for the week. “It’s either feast or famine,” she said, sighing.

As a young, single mother during the 1970s, Jane put herself through college and graduate school. She’s raised kids and grandkids. With the exception of one month in her youth, she has worked her whole adult life. She’s highly educated, hardworking, and yet is barely making ends meet. Jane is now approaching her 60s and doesn’t want to worry about changing careers at her age. She represents a growing trend of small business owners who are joining the ranks of people at risk for mortgage foreclosure.

This past spring, Minneapolis made Forbes’ top eight list for cities that saw the most dramatic increase in mortgage foreclosure rates. As of April 30, 2006 Minneapolis had 384 active foreclosures, marking a 43 percent increase in less than six months.

Top factors that lead to foreclosure include loss of income, medical bills, mental health, and refinancing/predatory lending. Loss of income doesn’t just mean unemployment, it can also be caused by divorce (splitting of a two-income household), loss of child support and disability.

Lower income people are represented at disproportionately higher numbers simply by the fact that they are more financially vulnerable. Any significant life change can have disastrous effects, since they are not likely to have a financial cushion to fall back on, and they will take longer to rebound. However, Habitat homeowners experience lower rates of foreclosures compared to other low income or at-risk homeowners. Foreclosure rates among TCHFH homeowners is currently 1.5 percent, compared to the current 3.9 percent among Minnesotans with sub-prime loans.

Cheryl Peterson, Senior Counselor for Twin Cities Habitat’s Mortgage Foreclosure Prevention Program says that some lenders target people who are delinquent or have high debt loads. Once the homeowner decides to refinance, there can be several fees involved that add to predatory lending, including: high loan origination fees, high discount points, yield spread premiums for higher interest rates and inflated home appraisals.

“One of these issues or fees in and of themselves isn’t predatory, it’s when they are combined that potential problems arise,” said Peterson. As well, first time homebuyers are sometimes approved for loans that are not affordable based on their incomes. It’s up to the borrower to be cautious and honest with themselves about what they can afford, or they risk foreclosure when the payments become too much.

Mortgage foreclosures result in stress, financial loss, and a tarnished credit history for the borrower. For the community, foreclosures lead to vacant houses that can quickly turn into “nuisance properties” which potentially triggers neighborhood problems including increased crime, lower property values and a considerable burden of direct municipal costs. A 2005 study by the Homeownership Preservation Foundation sited that in some cases, the cost of a single mortgage foreclosure to a municipality can exceed $30,000. Given the number of active foreclosures in Minneapolis alone, the potential cost is overwhelming.

Considering the impact and cost of foreclosures to individuals and communities, foreclosure prevention initiatives seem the most logical and cost effective solution. Twin Cities Habitat’s Mortgage Foreclosure Prevention Program (MFPP) was one of three program sites started in 1993, funded at both the city and state levels. Currently, the TCHFH program covers homeowners in South and Southeast Minneapolis. The Northside Residents Redevelopment Council provides coverage for North and Northeast Minneapolis, and the third program is located in St. Paul. In 2003, TCHFH expanded the program to include all Twin Cities Habitat homeowners.

No one is invulnerable to mortgage foreclosure. The MFPP serves a diverse group of people, not only in terms of ethnicity, but also family composition and income. While the average income of people served by the program is $35,000, clients of MFPP have made as much as six figures. TCHFH’s program site served 84 clients in the first six months of 2006. “We’ve had the busiest six months in the history of the program,” said Peterson.

When homeowners go through the MFPP program at Habitat, they can expect straight talk from the credit counselor, and they must be willing to make a commitment to adjust spending habits or make lifestyle changes in order to stay in their homes. A thorough review is done of the homeowner’s financial picture based on income, bills and spending habits. At the same time homeowners are involved in credit counseling, the mortgage lender is contacted to discuss options.

“Time is of the essence. Once people start missing mortgage payments, the sooner we get their application, the better chance we have at coming to a resolution. Sometimes people contact us two weeks before the sheriff’s auction takes place, and that’s really too late to do anything for them,” said Peggy Bloomstrand, MFP Counselor for TCHFH.

Jane applied to Habitat’s mortgage foreclosure prevention program early on — by the time her second or third mortgage payment was missed.

“I went to my lender and said, look I know I am going to have trouble, and I’m getting kind of scared here. The checks aren’t coming in, and nobody has any money,” said Jane. The lender suggested the MFPP program at Twin Cities Habitat for Humanity. “It’s great that there are places like Habitat where people can go for help — to give you a hand for a minute, or point you in the right direction, help you troubleshoot. I’m so very grateful for what they did,” said Jane.

Contributed by Sharon Rolenc