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Who's getting hurt? UM study crunches the numbers on Minneapolis foreclosures

Ryan Allen, an assistant professor of Housing and Community Development at the U, has been studying mortgage foreclosures in the city of Minneapolis to get a better picture of the local households caught up in the avalanche. Later today he'll be presenting his paper,  "The Unraveling of the American Dream: Foreclosures in the Immigrant Community of Minneapolis" to a meeting sponsored by the State Demographic Center, and tomorrow he'll make the same presentation at a Humphrey Institute gathering that's open to the public (but only if you RSVP; details).

Allen's research casts added light not only on the immigrant communities that are the focus of his study, but on the high proportion of a) rental households and b) families with children in school that have undergone foreclosure in the most affected parts of the city. I spoke to Allen about his findings on Wednesday morning.

SP: Let me start by asking you for an overview of the hardest-hit areas in the city.

Ryan Allen: If you look at a map, the foreclosures are far from randomly distributed in the city. The hardest-hit areas, of course, are the north side and the kind of south central region of the city.

Over the course of the last several years, Minneapolis has seen a big ramping-up in foreclosures. In 2005, there were almost 900 units. In 2006, it almost doubled to just over 1,600. And 2007 was just over 3,000. The progression has been really dramatic.

The collateral damage is hard to estimate at this point. We know from existing research on foreclosures that they have a significant impact not only on the properties that are foreclosed, but the housing around them too. There's one estimate from the Chicago area that a foreclosed property reduced the value of other homes within an eighth of a mile by 0.9 percent. If you think about that compounded--if, say, there are 10 foreclosures near your home--that gets to be a significant number.

Then there is the impact on the households that experience foreclosure. And those aren't always the people who own the home. My research shows that a slight majority of the foreclosures that have occurred recently in Minneapolis are on non-homesteaded properties--which in most cases means it's not an owner-occupied dwelling. We're talking about renters here.

That's a point of interest because you can see very different outcomes for a renting household that experiences a foreclosure. There's a massive disruption in their lives and they almost always have to move. That can have big implications for the school performance of kids living in the household, or the adults' access to their jobs and social networks.

The implications are even worse for homeowners who go into foreclosure. They have all the same problems as renters, but they take a major hit to their equity, their credit scores are going to plummet. They face a whole host of additional economic troubles.

I mention the distinction because we often think of foreclosures only from the perspective of the [homesteaded] homeowner. That's a big part of the story in Minneapolis, but it's not the only part. There's a really large proportion of foreclosures on those non-homesteaded properties.

SP: Tell me more about that. How much of the problem in these hard-hit neighborhoods stems from speculation or fraud, do you think?

Allen: Speculation is definitely a big part of the story. It's hard to be completely concrete in answering that, because the data are limited. If we look at the foreclosures in Minneapolis for fiscal 2006 and 2007--which are the two years of data I examined in my study--just about 61 percent of the foreclosures were non-homesteaded. It follows the same patterns as the foreclosures: The heaviest concentration is in north Minneapolis. The census tells us that in the city of Minneapolis for 2007, about 47 percent of households rented their homes.

So that's a pretty significant difference, 61 percent to 47 percent. My read on that is that speculation is a big factor. There are a lot of ways to quantify it, but what I'm attempting here is to consider some portion of the non-homesteaded properties as some kind of speculation. That may be fraud and it may not. The data I've got can't tell you motivations.

SP: Tell me about the study you're going to be presenting on Thursday and what you found.

Allen: I took the foreclosed property addresses for the two fiscal years I studied and asked the Minneapolis public schools to compare them to their database of information on pupils. When I found a match on addresses, I asked the schools to give me a little more information about the households who lived there--the language that was spoken in the home and the ethnicity of the child in school.

The first finding, which I already mentioned, is that 61 percent of the foreclosures were of non-homesteaded properties.

The second key finding is that households with children in them were disproportionately affected by the foreclosure crisis. Of the foreclosured addresses I sent to the schools--about 5,400 for the two-year period--almost 40 percent matched, meaning those households had children in the Minneapolis public schools. According to the census figures for 2007, that data suggests about 16.5 percent of Minneapolis households have a kid in public schools. So the incidence of kids in school is roughly two and a half times higher for foreclosed households than the general population of the city. That's striking.

If you look at the ethnicity of the foreclosed households that matched--the ones that had kids in school--60 percent were African-American. The census data suggests that about 35 percent of the households with a kid in school are African-American. That's almost double--about 80 percent over-representation. The other story there is the under-representation of white households. The census predicts that about 50 percent of the Minneapolis households with a kid in school are white. Only about 10 percent of the foreclosed addresses that matched school records were for a white household.

So this is much more a problem for communities of color. That's true for Hispanics as well, who are about 9 percent of households in the census and 17 percent of foreclosures in the two-year period. Among foreign-born households that experienced foreclosure, almost two-thirds were Spanish-speaking. Hmong were second at 15 percent.

SP: Do you have a sense of where we are in the cycle of subprime and Alt-A resets in the most affected neighborhoods?

Allen: I don't. But I'm involved in a project with a community group in the Hawthorne neighborhood that's looking at that exact issue. They're going out and identifying which mortgages in their neighborhood are set to re-adjust. They're planning on getting community volunteers to go knocking door to door to talk to those people to make sure they understand their options--helping them connect to the resources out there before some of them get into trouble instead of waiting until they've already missed three or four payments.

SP: Back to the question of speculation and fraud. I've heard anecdotally from people in the real estate business locally that there's a lot of in-group predatory practices among minorities and immigrant communities. Have you been hearing those stories as well?

Allen: Yes. That's a story that many people are talking about. It's the story of the relatively recent immigrant who's in a position to buy a home but is unfamiliar with how lending works or who to talk to. So they turn to someone in their community who has been here longer or has connections. What I've heard is that middle person in some cases is leading their contacts astray. But that's anecdotal, as you said. I haven't done research on it.

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