Northland's slow economic recovery takes toll on homeowners

Just when we thought the recovery was under way, foreclosures took a giant leap in the Northland.

Their numbers have doubled in St. Louis County and Carlton County in the first three months of 2010 compared to the same period in 2009. They increased a whopping 650 percent in Lake County and 500 percent in Koochiching County.

That's compared to a 28 percent increase statewide and 22 percent increase in the Twin Cities.

Dan Hylton, who compiled the county numbers for Housing Link, a clearinghouse for affordable housing data, points to lingering unemployment as a reason for the increase. Unemployment remains in the double digits on the Iron Range and some other Northland communities while statewide unemployment is below 9 percent.

"Employment is a lagging economic indicator, and homeownership is a lagging indicator of unemployment," Hylton said.

Indeed, the biggest factor leading to foreclosure is reduced income when you were barely making it before, says Dan Williams, program director for Lutheran Social Service financial counseling service.

"That's devastating," Williams said. "It's people who had their hours cut, are no longer getting overtime or lost a second job. And a lot of people have been laid off."

Between 2005 and 2008, when foreclosures peaked in Minnesota, the numbers quadrupled statewide and in the Twin Cities. Meanwhile, they just doubled in St. Louis County.

Tony Barrett, an economist at the College of St. Scholastica, says the Twin Cities area was hit sooner and harder with foreclosures, the result of subprime mortgages, declining real estate values and big developments and subdivisions going under.

"We don't have those big (development) chunks here," Barrett said. "And we didn't have the abuse in the Twin Cities and the bubble in the real estate prices that they did."

A drop in the foreclosure numbers in early 2009 turned out to be temporary.

Local real estate agent Michele Lyons of Port Cities Reality credits the federal government's efforts to stem foreclosures in late 2008 and early 2009.

"It temporarily made the numbers look better the first quarter of last year," said Lyons, who specializes in foreclosure sales. "They weren't sending as many people to the sheriffs' (foreclosure) sales."

Once restrictions were lifted, the numbers began to rise again.

While the trend throughout Minnesota has been a gradual increase in the number of foreclosures since that 2009 dip, the rise in the Northland has been more pronounced. Some say the Northland, after lagging behind the rest of the nation, is now feeling the impact of the economy on housing.

But while the first wave of foreclosures largely involved subprime mortgages, this wave is different, Lyons says.

"It's not all mortgages and bad loans," she said. "It's people who have lost their jobs. We're getting a different portion of the market."

Williams also noted the difference.

A year ago, foreclosures were due to subprime lending and people overleveraging their homes before home values dropped. Now, it about unemployment, under-employment, debt and health-care costs, he said.

"It's much more about the real economy, which is more troubling," he said. "There's a lot of people now being foreclosed on that had never had to struggle with financial problems before."

As foreclosures increased, so have the number of people seeking foreclosure prevention counseling from Lutheran Social Service. Numbers rose from 51 in October to 90 in January, where it has remained since, records show.

The city of Duluth's foreclosure task force, formed two years ago, has encouraged people facing foreclosure to use the agency's counseling service. Forty percent who do have kept their homes, while 60 percent simply can't afford it anymore, Williams said.

The main strategy used to ward off foreclosure is working with mortgage lenders to modify loans, he said.

Even if they lose their homes, counseling helps them understand their rights and reduces the chances that they'll be taken advantage of, he said.

Barrett said the foreclosure numbers reveal something else: 2009 was a brutal year economically. But he sees hope in the current economic indicators.

"This is pretty much the worst of it," he said. "With the economy turning around and incomes getting better, people should be able to get caught up."