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Here’s how the Dakotas avoided the foreclosure crisis

The Dakotas' steady people, steady economy: No boom, but no trough either.
CORBIS/Annie Griffiths
The Dakotas’ steady people, steady economy: No boom, but no trough either.

GRAND FORKS, N.D. — Sometimes it’s a good thing to be overlooked.

As the subprime loan debacle deepens, with staggering numbers of foreclosures straining the home-loan industry and state budgets in California, Florida and other parts of the country, a few states — including the Dakotas — have recorded significantly lower foreclosure rates.

While almost a quarter-million California properties were involved last year, South Dakota had only 50 homes in foreclosure in 2007, a nearly imperceptible 0.007 percent of homes in the state, the New York Times reported. Nevada’s nation-leading rate was 3.4 percent, but North Dakota was below 0.1 percent, along with Maine, Vermont and New Hampshire.

“I think the primary reason we have not had any significant foreclosure problems is that we never did see any spike in residential prices,” said Curtis Everson, president of the South Dakota Bankers Association.

“States like North Dakota and South Dakota are not exactly retirement destinations,” he said from his office in Pierre. “That’s what drove the housing boom in Nevada and some of those other places.

Not a place for buying retirement homes

“For good or bad, we are not the place people want to buy a second home for retirement.”

Another factor: “Our economy really is pretty good right now,” Everson said. “Our rate of personal income growth is toward the top, which has a lot to do with agricultural commodity prices. And unemployment has not seen any spike.

“South Dakota has not boomed with the rest of the country in good times, but then we don’t have the trough to fall into, either.”

Rick Clayburgh, president of the North Dakota Bankers Association in Bismarck, offered similar explanations for his state’s escaping the subprime fallout.

Farmers received record prices for a bumper wheat crop and other commodities. The Williston Basin oil patch is booming. The Canadian dollar’s strength against the U.S. dollar has fueled tourism.

‘A pretty robust real-estate economy’

“We’ve seen a lot of growth, and with that comes job development and a pretty robust real-estate economy,” Clayburgh said.

In a recent editorial, the Bismarck Tribune asked, “Is N.D. way the model?”

The state’s economy is strong, even vibrant. While Minnesota and other states struggle with deficits, “North Dakota legislators debate how much of a comparatively enormous surplus to spend.”

What is “the N.D. way”?

“There’s an inborn sense of restraint, not only among our elected representatives but also found in most of us,” the newspaper editorialized. “Perhaps an attitude of restraint explains why North Dakota isn’t affected by the mortgage industry mess to the extent many other states are. Lenders and borrowers here tend to be careful.”

Housing Predictor
, a Web site that forecasts changes in the real-estate market, includes three cities in what it calls “conservative North Dakota” on its list of the top 25 markets for 2008.

Bismarck is third with a forecast growth of 5.6 percent, Fargo ninth (4.5 percent) and Grand Forks 15th (3.9 percent).

North Dakota a big exception
“North Dakota might be the biggest exception in America’s real-estate recession,” according to the site’s editors. “It’s one of only two states to actually see its home sales increase in the latter half of 2007, and it just may make it through the housing market turmoil unscathed.

“That isn’t to say there isn’t downward pressure on home pricing. These days it’s harder to get a mortgage, which will influence North Dakota’s housing markets in the future. But the state escaped the use of subprime mortgages and other alternative adjustable rate loans, which have damaged markets elsewhere.”

Clayburgh said he was aware of “a couple cases in Fargo where folks got into loans that were not the best for them,” and they were facing foreclosure. Local banks “helped them refinance and get out of that trouble,” he said.

 “From a lending perspective, we’re not a hotbed for what are referred to as unregulated mortgage brokers. There are companies … some of them do a nice job and they’re trying to serve customers. But there are lots of them that were ruthless in hiding fees in pages upon pages of documents, putting folks into loans that no lender in his right mind would put a borrower into because of their ability to pay.

Lenders heavily regulated

“Our lenders here are heavily regulated and are doing the proper accounting for folks who were taking out loans they could afford based on income and proper analysis,” Clayburgh said. “Nationally, when these [finance] companies sell these subprime mortgages, they don’t always hold onto them. They turn around and sell them, close up shop, take the fees and leave.

“Overall, as a society we’re a little more conservative here in North Dakota.”

The same goes for South Dakota, Everson said.

“We do have a fairly conservative heritage here,” he said. “My people are of Scandinavian and German descent. They came to this country and didn’t have much, and then they went through a depression. That left an impression on those folks, and that’s not been lost on their children.

“Remember, people in this part of the world are still building capital, not inheriting it. That tends to temper people’s risk tolerance a bit.”

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