st. paul east side housing study

7/31/2019 St. Paul East Side Housing Study

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LOS HOMES:How the Housing Crisis has hit the East Side andNorth End o St. Paul

Inroducion

Subprime Morgage Lending

Foreclosures

Vacan Houses

Home Values

ecommendaions

able o Contents:

May 2012

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INRODUCION & SUMMARY OF FINDINGS:

Te subprime mortgage meltdown has resulted in a record number o oreclosures and plunged the UnitedStates into the worst nancial crisis since the Great Depression. St. Paul has not been immune fom thiscrisis, and the North End and East Side neighborhoods have been hit the worst.

Subprime lenders argeed lower-income and minoriy homeowners or high cos loans. In some cases, he

subprime lenders were owned or bankrolled by mainsream nancial insiuions such as Wells Fargo andUS Bank, whose loans were more likely o be in predominanly whie neighborhoods.

One ou o every six o he renance loans made by Wells Fargo on he Eas Side and Norh End weremade by is nance company Wells Fargo Financial. In conras, Well Fargo Financial accouned orjus one ou o every oureen o Wells Fargos renances in he win Ciies mero area.1

Subprime loans sripped homeowners o heir wealh and led o an epidemic o oreclosures.

Te number o oreclosures in amsey Couny skyrockeed rom 632 in 2005 o a peak o over 3,000 in2008.2 Alhough he number o oreclosures has passed is peak, i appears ha here will be housandsmore in he nex ew years.

Since las April, he Eas Side and Norh End have had more oreclosure lings and sales han oherneighborhoods in S. Paul.3

Foreclosures ravaged neighborhoods and le behind a rail o vacan homes.

Tere are over 1,200 vacan residenial buildings in S. Paul.4

Ward 7 has more vacan buildings han any oher ward in he ciy.5

Over 60% o he vacan residenial buildings are in Wards 5, 6, and 7.6

Te unprecedened numbers o oreclosures and vacan homes caused a seep and coninuingdecline in home values hroughou he ciy, bu especially in minoriy neighborhoods.

Homes in he Eas Side, Norh End, and Tomas-Dale neighborhoods experienced he greaes losso value, dropping 50% since 2006, whereas homes in he Mac-Groveland, Highland, and S. AnhonyPark neighborhoods los he smalles percenage o heir value, less han 20%.7

LOS HOMES: How the Housing Crisis has hit the East Side and North End o St. Paul 4


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A number o repors have documened he sarling racialand economic dispariies in morgage lending. esidenso low-income and minoriy neighborhoods were muchmore likely han residens in upper income and predomi-nanly whie neighborhoods o receive a high-cos subprime

loan.8

Te vas majoriy o subprime loans were or renances,raher han home purchases. For insance, rom 2005 o2007, Wells Fargo Financial made a oal o jus wo homepurchase loans in he enire win Ciies mero area.9 Sub-prime loans were promoed as a way o consolidae deb,provide money or home improvemens, or or householdor personal needs, raher han being sough by borrowers asa way o lower heir ineres raes or lock in a xed rae.

Tere are circumsances where renancing o use someo he equiy in ones home makes sense, bu cash-ou re-nances were rie wih poenial or abuse by lenders. oooen homeowners wih signican amouns o equiy wereconvinced o renance under condiions ha le hem con-siderably worse o han hey were beore. In some cases,homeowners were sold renance loans which produced

jus a ew housand dollars in cash a closing, bu which re-nanced heir exising morgages a higher raes, high ees,and oen wih abusive loan erms.

While subprime lenders someimes appeared o be small-ime soreron operaors, he masers behind subprimelending could be ound among some o he worlds largesnancial insiuions. Someimes hese insiuions haddirec ownership o subprime lending subsidiaries, such as

Wells Fargo and Wells Fargo Financial. In oher cases, heseinsiuions bankrolled subprime lenders by invesing inhem direcly, such as wih US Bank and New Cenury Fi-nancial.

Te renance loans made hrough he bank had greaer con-cenraions in predominanly whie neighborhoods, whilehe loans made hrough he subprime lender were moreconcenraed in lower-income and minoriy neighborhoods.

Tis creaed a shameul patern o proeering; preying onhe mos vulnerable among us, and creaing a devasaingimpac on already-sruggling neighborhoods.

o One ou o every six o he renance loans made by Wells

Fargo on he Eas Side and Norh End o S. Paul (Wards 56, and 7) were made by is nance company Wells FargoFinancial. In conras, Well Fargo Financial accouned or

jus one ou o every oureen o Wells Fargos renancesin he win Ciies mero area.10

Wells Fargo

In July 2011, he Federal eserve Board assessed an $85million civil penaly agains Wells Fargo, he larges ne heFederal eserve has ever imposed in a consumer case.11 Te

Federal eserve charged ha beween 2004-2008 WellsFargo Financial seered cusomers ino more expensive sub-prime loans even hough hey qualied or beter raes. Aspar o is setlemen wih he Federal eserve, Wells Fargo

will have o repay up o $200 million o cusomers ha iovercharged.12

Previously, he Illinois Atorney General sued Wells Fargoor seering Arican-American and Laino homeowners ohigher cos subprime morgages while giving whie bor-

rowers who had similar incomes lower cos loans. Te suicharged ha Wells Fargo drained wealh rom amilies andneighborhoods and added o he sockpile o boarded-uphomes . . . 13

An analysis o Wells Fargos lending pracices in he winCiies suggess a patern o subprime lending wih disparae impacs on minoriy neighborhoods. Wells Fargo hasserved upper income and predominanly whie neighbor-hoods hrough is bank, providing prime loans wih gooderms and low raes. In conras, Wells Fargo has served

low-o-moderae income and minoriy neighborhoods dis-proporionaely hrough is nance company, Wells FargoFinancial, which makes higher rae subprime loans.

SUBPRIME MORGAGE LENDING



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US Bank

US Bank was a major invesor in New Cenury Financial,he poser child or bad pracices in he morgage indus-ry. By 2007, when he company led or bankrupcy, NewCenury was he second larges subprime morgage lenderin he counry.14

In 1998 and 1999 when i was dicul or subprime lenderso raise capial, US Bank came o New Cenurys rescue andinvesed $40 million in he company. US Bank reaped apro o nearly $18 million rom his invesmen wihin jusa ew years.15

In conras o US Bank, New Cenury, which made loanswih high raes and enormous ees, made a large percen-age o is loans o minoriy neighborhoods. From 2004 o2006, New Cenurys las year o business, almos hal o he

renances New Cenury made in S. Paul were in minoriyneighborhoods. Whereas jus 14% o US Banks renancesin S. Paul were in minoriy neighborhoods.16

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

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



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The number of foreclosures in Ramsey County sky-

rocketed from 632 in 2005 to a peak of over 3,000 in

2008. Although the number of foreclosures has passed

its peak, Ramsey County still experienced over three

times more foreclosures in 2011 than in 2005, and it

appears that there will be thousands more in the next

few years.

A recent Star Tribune article noted that there may be

an increase in foreclosures coming in Minnesota. The

article attributed the decline in foreclosures in part to

the hold that lenders put on foreclosures due to the

robo-signing scandal, and quoted a real estate expert

who said that theres definitely another round of fore-

closure coming down the pipeline.18

Foreclosures in Ramsey County19

Year: 2005 2008 2011Number of Sheriff s Sales: 632 3,023 2,078

The areas in the Twin Cities that have been the most

affected by foreclosures are the North Side of Min-

neapolis and the Payne-Phalen neighborhood on St.

Pauls East Side.20 In St. Paul, the zip codes with the

most foreclosure activity since last April are all on the

East Side.21

Zip Code Foreclosure since April 2011

55106 40655119 229

55117 214

According to a national study by the Center for Re-

sponsible Lending approximately 8 percent of Af-

rican-American and Latino families have lost their

homes to foreclosure compared to 4.5 percent of white

families.22

Many of these foreclosures can and should be avoided.

A report from state regulators stated:

[T]oo many homeowners experience foreclosure

when finding an alternative solution would be in the

interest of both the homeowner and the mortgage

holder. Preventing these unnecessary foreclosures

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

The regulators found that mortgage servicers were

only reaching a minority of delinquent homeowners

with their foreclosure prevention efforts.

Nearly three years into the foreclosure crisis, we

find that more than 60% of homeowners with seri-

ously delinquent loans are still not involved in anyloss mitigation activity.24

As the foreclosure crisis has exploded, mortgage ser-

vicers have failed to adequately meet the number of

delinquent homeowners. In a recent GAO survey of

non-profit housing counselors, for example, seventy-

six percent of the counselors reported that overal

their clients had a negative or very negative expe-

rience with the mortgage servicers. The most com-

monly cited problems were of homeowners receiving

inconsistent or confusing information, speaking to adifferent representative each time they called, of ser-

vicers losing their paperwork, and of the decision-

making process taking too long.25

Even worse, the Office of the Comptroller of the Cur-

rency (OCC) conducted examinations of the foreclo-

sure processes of US Bank and Wells Fargo and found

that both banks engaged in unsafe or unsound prac-

tices26, such as:

Filing legal affidavits in which bank employees made

assertions that they claimed, falsely, were based on

personal knowledge or review of the relevant records

Filing numerous affidavits courts that were not

signed in the presence of a notary

Failing to devote adequate oversight, internal con-

trols, policies and procedures to their foreclosure pro-

cesses

Failing to sufficiently oversee outside lawyers and

other third-parties handling foreclosures

In addition the OCC found that Well Fargo:

Initiated foreclosures without always ensuring that

mortgage documents met legal requirements

Failed to devote sufficient financial, staffing and man-

agerial resources to its foreclosure processes

FORECLOSURES



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Foreclosures no only impac he individual homeownersbu also local governmens, neighbors, and oher properyowners. Especially when a oreclosure leaves a home vacanand unsecured, i can cos ciies and counies ens o hou-sands o dollars.

Foreclosures resul in decreased revenue or ciies and coun-ies hrough lower propery values, delayed and uncollecedaxes, and unpaid services. A he same ime ha oreclosuresmean less revenue or ciies and counies, hey also imposeaddiional requiremens o hose ciies and counies or in-creased policing, building inspecion, demoliion, properymainenance, and managing he oreclosure process.

Aer peaking in 2008, he number o vacan houses hassared o decline, bu here are sill almos our imes moreproperies on S. Pauls vacan building lis han here were

in 2004.

Vacant and Boarded Buildings in St. Paul27

Year 2004 2008 2012Buildings 370 2,000 1,291

Te vacan buildings are disproporionaely concenraedon he Norh End and Eas Side o S. Paul.

Over sixy-percen o he vacan residenial buildings are in

Wards 5, 6, and 7.

Te larges number o vacan residenial buildings in S.Paul is in Ward 7.

Ward #Vacant Residential Bldgs % o 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%

Vacan homes have been he sie o numerous crimes. In ad-diion o burglary and respassing, here have been severalhigh prole incidens in S. Paul recenly. In March, policecharged nine men and eens wih dragging a 14 year old girlino a vacan home and sexually assauling her. Ta samemonh, a man was killed on he porch o a vacan home

where he had gone o setle a drug deb. In December, ahomeless man died aer saring a re in a vacan house inMinneapolis.28

In conras o S. Paul, Minneapolis has many ewer vacanbuildings and charges propery owners a much higher va

can building ee.

City Properties on Citys Vacant Building List29

2004 2008 2012S. Paul 370 2,000 1,291

Minneapolis 286 857 851

Vacant Building Registration Fee30S. Paul $1,200

Minneapolis $6,746

I S. Pauls vacan building regisraion ee were he same asha in Minneapolis, i would resul in over $7 million a yearin exra revenue or S. Paul.31

VACAN HOUSES



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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%

Daytons 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%


HOME VALUESTe unprecedened numbers o oreclosures and vacanhomes caused a seep and coninuing decline in home val-ues hroughou he ciy, bu especially in minoriy neigh-

borhoods.

From 2005 o 2009 he median level o home equiy ha

Laino homeowners had naionally was cu in hal rom$99,983 o $49,145. For Arican-American homeowners,he median level o home equiy declined rom $76,910 o$59,000 during his period. For whie homeowners, i de-creased rom $115,364 o $95,000.32

A recen repor rom he Pew esearch Cener ound hahe bursing housing bubble and he decline in home valuesand equiy resuled in decreases in average American household wealh o:33

66% or Lainos rom $18,400 o $6,30053% or Arican-Americans rom $12,100 o $5,700

16% or whies rom $135,000 o $113,000

In S. Paul, homes in he Dayons Blu, Payne-PhalenNorh End, and Tomas-Dale neighborhoods experiencedhe greaes loss o value, dropping 50% since 2006, whereashomes in he Mac-Groveland, Highland, and S. Anhony

Park neighborhoods los he smalles percenagedropping less han 20%.34

In oal, S. Paul has los over $61 billion in homevalue, which could drain $46.3 million in annua

ax revenue rom amsey Couny and $15.5 mil-lion in annual ax revenue rom he ciy.35


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1) Te state o Minnesota, counties, and cities shouldadopt a oreclosure mediation program to prevent un-necessary oreclosures.

Tere is growing recogniion o he eeciveness o oreclo-

sure mediaion programs in prevening unnecessary ore-closures. Te number o saes and municipaliies ha havesuch programs coninues o grow, and here are now juris-dicions in 24 saes ha have oreclosure mediaion.

Foreclosure mediaion benes all o he involved paries:- Servicers avoid a long and cosly oreclosure process sincemore han 70 percen o mediaed cases reach a setle-men.36

- More han hal o homeowners in mediaed cases ge okeep heir homes, while hose or whom ha is no a sus-

ainable opion also bene by negoiaing a graceul exiin how and when hey move ou.- For governmen, mediaion can reduce he number o va-can homes and sabilizes propery values and ax revenue.

In 2009 he Minnesoa legislaure passed he Homeowner-Lender Mediaion Ac which would have required lenderso oer homeowners he opporuniy o paricipae in non-

binding mediaion beore he lender could oreclose, how-ever Governor ime Pawleny veoed he bill.37

Under he Ac, lenders would have been required o servea mediaion noice o he homeowner and led proo o i

wih he Atorney Generals oce. Homeowners wouldhave 20 days aer his o le a reques or mediaion. I hehomeowner does no reques i, hen he lender could pro-ceed wih he oreclosure.

Alhough a sae level mediaion program would be opimalin ha i could bene rom an economy o scale and wouldserve he larges number o homeowners, ciies and coun-

ies can implemen heir own mediaion programs.

2) Minneapolis charges property owners $6,746 annu-ally to register vacant buildings, while St. Paul chargesjust $1,200.Te ciy o S. Paul should increase is vacan building regis-raion ee o ose he signican coss o he ciy o vacan

buildings, bu also o reduce he number o vacan buildingsby spurring owners o sell or rehab heir properies.

3) Local governments, school boards, and public agen-cies should require that any banks they do business withmeet responsible lender criteria that includes using best

practices or oreclosure prevention.

4) Local governments, school boards, and public agen-cies should require that any banks they do business pub-licly disclose inormation regarding its oreclosures, including:

a. Te number o homeowners eligible or loan modica-ions

b. Te number ha received or were denied permanenmodicaions

c. Te principal and/or rae reducion in each modica-iond. A breakdown or each o he above caegories by he raceehniciy, and census rac o hehomeowners.

5) Mortgage servicers should comply with the ollowingbest practices or oreclosure prevention:

a. Sop oreclosure proceedings while hey are evaluaing aborrowers eligibiliy or a loan modicaion or oher oreclosure prevenion opions

b. espond wihin 72 hours o requess or inquiries abou

loan modicaionsc. Ensure ha he loan modicaion process akes less han30 daysd. Modiy roubled loans so ha hey are or no more hanhe value o he homee. Allow enans o oreclosed properies o coninue o renhe propery unil i is sold. ake seps o ensure ha is loans are no being used orpropery fipping or oreclosure rescue scams.

RECOMMENDAIONS



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Home Morgage Disclosure Ac daa rom 2004-2006Foreclosures in Minnesoa: A epor Based on Couny Sheri s Sale Daa, February 15, 2010, Housing Link, p. 8ealyrac.com, Foreclosure saisics or pre-oreclosure, aucion, and bank-owned properies,Daa rom ciy o S. Paul Vacan Building egisraion Lis March 12, 2012, 846 single amily, 307 duplexes, 64 muli-amilyDaa rom ciy o S. Paul Vacan Building egisraion Lis March 12, 2012Daa rom ciy o S. Paul Vacan Building egisraion Lis March 12, 2012Zillow Home Values Index, calculaed March 21, 2012Los Ground, 2011: Dispariies in Morgage Lending and Foreclosures, Debbie Gruensein Bocian, Wei Li, Carolina eid, Cener or

esponsible Lending, November 2011, p. 11. Income is No Shield Par III. Assessing he Double Burden: Examining acial and GenderDispariies in Morgage Lending, Naional Council o Negro Women and Naional Communiy einvesmen Coaliion, June 2009, p. 1.Unequal Opporuniy Lenders? Analyzing acial Dispariies in Big Banks Higher-Priced Lending, Andrew Jakabovics and Je ChapmaCener or American Progress, Sepember 2009, p.1.Home Morgage Disclosure Ac daaHome Morgage Disclosure Ac daaWells Fargo, Counrywide Morgage Setlemens Give Homeowners a Bi o elie, Daily Finance on AOL.com, Caherine New, July 22

2011Up o 10,000 cusomers, up o $20,000 each, equals $200 millionJuly 31, 2009 Press elease, Madigan Sues Wells Fargo or Discriminaory and Decepive Lending PracicesNew Cenury, Bigges Subprime Casualy, Goes Bankrup, Bloomberg, April 2, 2007, Bradley Keoun and Seven Church.U.S. Bancorp Pros Handsomely rom Is Invesmen in New Cenury, Naional Morgage News, March 11, 2002, Brad Finkelsein

Home Morgage Disclosure Ac daaBased on Home Morgage Disclosure Ac (HMDA) daa or rs lien convenional renance loansMore home oreclosures on horizon in Minnesoa, Star ribune, Jim Bucha, April 16, 2012Foreclosures in Minnesoa: A epor Based on Couny Sheri s Sale Daa, February 15, 2010, Housing Link, p. 8, and 2011 Foreclosurin Minnesoa: A epor Based on Couny Sheris Sales Daa, February 24, 2012, p. 5Fosering Equiable Foreclosure ecovery, Sarah reuha, Kalima ose, and Jennier ran, Policy Link, January 2012, p. 14ealy rac. Includes pre-oreclosure noices and sheri s salesSpeculaors, No CR, Behind Foreclosures in Black Neighborhoods, Sepember 7, 2011, American Banker, John I. Gilderbloom and

Gregory D. SquiresAnalysis o Morgage Servicing Perormance, Daa epor No. 4, January 2010, Sae Foreclosure Prevenion Working Groupedeaul aes Improve or ecen Loan Modicaions, Sae Foreclosure Prevenion Working Group Memorandum on Loan Modic

ion Perormance, Augus 2010GAO-11-367 Survey o Housing Counselors abou HAMP, May 26, 2011, Unied Saes General Accouning Oce

Unied Saes o America, Deparmen o he reasury, Comproller o he Currency, Consen Order AA-EC-11-18 In he Mater o USBank Naional Associaion, and Unied Saes o America, Deparmen o he reasury, Comproller o he Currency, Consen Order AA-EC-11-19 In he Mater o Wells Fargo Bank N.A.In housing meldown, ciies urn ino buyers, Star ribune, Chris Havens, February 7, 2010 and Ciy o S. Paul vacan building lis as o

March 1, 2012, htp://www.spaul.gov/index.aspx?NID=2272Vacan houses no always emply, Sar ribune, April 30, 2012, Chao Xiong.

In housing meldown, ciies using ederal money o address oreclosures, Star ribune, Sepember 18, 2010, Chris Havens, Ciy o S. Pauvacan building lis as o March 1, 2012, htp://www.spaul.gov/index.aspx?NID=2272 , and Minneapolis Lis o Vacan and CondemnedProperies as March 2, 2012,htp://www.ci.minneapolis.mn.us/www/groups/public/@regservices/documens/webconen/conver_254314.pdMinneapolis Direcors Fee Schedule, p. 6

Te Minneapolis annual ee is $5,546 higher han he S. Paul ee. Tere are 1,291 vacan buildings curren on S. Pauls vacan buildingregisraion lis. $5,546 x 1,291 = $7,159,886

Wealh Gap ise o ecord Highs Beween Whies, Blacks, Hispanics, Pew esearch Cener, July 26, 2011Wealh Gap ise o ecord Highs Beween Whies, Blacks, Hispanics, Pew esearch Cener, July 26, 2011Zillow Home Values Index, calculaed March 21, 2012

According o Zillow.com, he value o he average home in S. Paul has declined $82,700 rom April 2006 o January 2012. Tere are 74,00single amily, duplex, r iplex, condo unis, and ownhomes in he ciy o S. Paul, according o he Wilder esearch Ceners Census Facs.Tis calculaes o a oal o $6.1 billion in oal los home value. Using he amsey Couny ax rae o 1.01% o a homes value, he loss invalue means $61.8 million in los propery axes. Te ciy receives abou 25% o he oal propery ax. htp://www.spaul.gov/DocumenView.aspx?DID=17200Walk he alk: Bes Pracices on he oad o Auomaic Foreclosure Mediaion, Alon Cohen, Cener or American Progress, November2010Minnesoa AG o push or Foreclosure Mediaion, Housing Wire, Jon Prior, January 8, 2010

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Tis sudy was published by ISAIAH, a aih-based coaliion o more han 100member congregaions ha works or economic and racial jusice hroughou heSae o Minnesoa.

st. paul east side housing study

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