Legacy of Subprime Lending Hits Midwest Hard

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Minneapolis is one of the many places seeing increases in home foreclosures. From 2005 to 2006, foreclosure rates nearly doubled there. Michele Norris talks with Jim Davnie, a state representative for south Minneapolis, about the effects of subprime lending on neighborhoods he represents.


Now to one of the places that's seen a big increase in foreclosures: Minneapolis, Minnesota. Jim Davnie serves in the Minnesota legislature. He represents South Minneapolis, which is in Hennepin County. From 2005 to 2006, foreclosure rates there nearly doubled. They went up 81 percent. Davnie says it's easy to see the effects of misguided subprime lending in his city.

State Representative JIM DAVNIE (Democrat, Minneapolis): You'll find blocks where there are two, three, four, even five boarded and vacant houses on them. Most of those are result of foreclosures. Most of those are result of predatory subprime loans being given into areas with high populations in communities of color, new Americans or low-income folks.

NORRIS: Now, are these families that were first-time homeowners new to the housing markets because of these subprime mortgages?

State Rep. DAVNIE: The good side of the subprime industry is it did provide people with access to credit and the ability to borrow homes. When you got into the predatory end of things, however, things often have turned south for families. They were aggressively marketed loans that weren't a good fit for them.

Talking to foreclosure prevention specialists on the ground in Minneapolis, what they tell me is that they're getting 100 calls a month or more. All of the loans that they're seeing were subprime nontraditional loans given not through traditional banks or credits unions but through brokers. And they all are ARMs. They all are adjustable rate mortgages that are resetting and - resetting two or three percentage points above what they originally were sold at.

NORRIS: Now you said that there are several boarded up properties, are other people moving into these homes or are they just sitting vacant?

State Rep. DAVNIE: Many of them are sitting vacant for extended periods of time. Some of that is the function of how long it actually takes for a bank to foreclose. Some of it is that the housing market in Minneapolis, after being very hot for the last number of years, has cooled off.

And so even the neighbors who are left who are in foreclosure, they are finding that they have a hard time selling their homes for the prices that they need to satisfy their mortgages because the housing market has headed south so badly.

NORRIS: Walk down the street with me, at least hypothetically here, and explain what we might learn about those houses if you gave me a tour.

State Rep. DAVNIE: Sure. Each of them would tell a different story. It might be an elderly couple who have been longtime homeowners in that area, got into some sort of trouble, took out a second mortgage on the house but ended up with health problems, ended up disabled or partially disabled, have experienced just a severe cut in their income at the same time that their mortgage, because it was an adjustable rate mortgage, is resetting to a higher payment.

It might have been a single mom with a couple of kids who's looking to stabilize her family, who was aggressively marketed a loan without always being given the full details on the loan, who now finds that that mortgage is going up and up and up, and she can't hold onto it. And she was counting on that house not only to provide stability for the children as they grew up, but also as an asset that she could borrow against later when the kids wanted and needed money for college to provide that opportunity.

So it's very much a human story about individual people who took out loans and tried to achieve the American dream. It's also a larger story about the vitality of the economy in our urban areas.

NORRIS: Representative Davnie, thanks so much for your time.

State Rep. DAVNIE: Thank you, Michele.

NORRIS: That was Representative Jim Davnie. He represents South Minneapolis in the Minnesota legislature.

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