Back in March we talked about the approaching next mortgage mess and how the Twin Cities ex-urbs and selected parts of central Minnesota were likely to feel it worse.
So we took notice this morning when we read in today's Brainerd Dispatch, "Foreclosures increase in Cass County." Cass and the Brainerd Lakes areas were among the areas we highlighted in the spring. MPR reporter Tom Robertson focused in, too.
The Brainerd story reports data showing 35 Cass County properties went into into foreclosure from July to September compared with 33 last year.
While the number didn't change that much the nature of those foreclosures shifted.
The value of properties foreclosed remained at about 10 for those under $100,000 and about a dozen for those worth $100,000 to $200,000, but the number valued at $200,000 to $400,000 more than doubled from five to 11. Only one property worth over $400,000 went into foreclosure this year, compared with five in 2009.
It looks like what John Patterson, research director for the Minnesota Housing Finance Agency identified earlier this year.
Patterson built maps examining non-prime adjustable rate mortgages that have yet to reset their interest rates. Here's the map from June. The darker the color the bigger the potential problem. (Click on it for a larger view.)
The map's important because there's an ongoing concern the last chunk of adjustable rate mortgages made while economic times were good and home values were still rising, are the ones likely to cause trouble in coming months.
These would be ARMs built to reset their interest rates and recast their monthly payments after five years. Think of it as the "deals" from 2005 coming back to haunt in 2010 and beyond.
Back in the spring, looking at similar maps from December, it looked like the potential problems were concentrated in some of the farthest reaches of the Twin Cities suburbs and in central Minnesota where lots of larger, expensive homes were built earlier in the decade.
The Brainerd story offers some evidence that's what we're seeing -- foreclosures rising now for houses in the $200,000 to $400,000 range. I'll speculate that these are folks who found a way to afford lake homes using adjustable rate loans and who couldn't make it.
We're not talking about the super rich or low income folks or people who were the worst credit risks. As Patterson notes:
The foreclosure crisis is transforming from a subprime crisis to a prime crisis. -- Between 2007 and 2010, the subprime market's share of residential mortgages in foreclosure dropped from 54% to 25% in Minnesota. -- During the same period, the prime market's share increased from 40% to 60%.
Yes, it's only Cass County and a small sample size. But that's typically how these bigger problems surface, not as a huge wave but a trickle.
Think we're off base on the housing and mortgage concerns? Tell us. Post below or contact us directly at MinnEcon.
The big question is whether these loans are negative amortization or interest-only ARMs or just straight ARMs.
NegAm loans will have a much bigger payment shock since now they need to pay off the entire loan amount in just 25 years.
Straight ARMs may actually be just fine - with rates as low as they are right now, some people's payments could even go DOWN!
The devil is in the details...