MANKATO — She gives her name, but doesn’t want it printed. Foreclosure isn’t something to be proud of.

The Mankato woman’s home has been trashed by an unwelcome guest, her knee injured in an accident that cut her down to part time work only. She stopped making house payments last summer, and could only watch in January as her home was sold to the highest bidder.

It’s a tragic story, and one that’s being retold more often. Foreclosure rates are skyrocketing across the country, southern Minnesota included.

Explanations for the upswing include rising interest rates and new, riskier mortgage options. Homeowners who are just treading water are finding it easier and easier to sink.

In Blue Earth County, the number of homes sold — typically to an out-of-state mortgage company — due to foreclosure has risen by two-thirds, from 54 in 2005 to 91 in 2006, according to county records compiled by The Free Press.

In Sibley County, foreclosures increased from 25 in 2005 to 41 in 2006, an increase of 64 percent.

(Most area counties, including Nicollet County, don’t keep year-to-year records on the number of foreclosure sales.)

The Star Tribune reports a 79 percent rise in home loss due to Minneapolis foreclosures from 2005 to 2006. And the St. Cloud Times says foreclosures there have risen 83 percent.

Risky loans

Medical catastrophe and job losses have long caused mortgage foreclosures, but neither cause seems to be on a sharp upswing lately.

A state-sponsored study shows that the number of Minnesotans without health insurance rose from 2001 to 2004, but only slightly — from 5.4 percent to 6.7 percent.

And Blue Earth County’s unemployment rate has decreased from 3.3 percent in 2000 to 3.2 percent in 2006, according to state figures.

Denise Nienow, vice president of Pioneer Bank, said declining interest rates in the late ’90s allowed prospective home buyers to buy more expensive homes.

Mortgage lenders began to allow so-called “boutique” loans that can carry more risk.

They include adjustable-rate loans, which take advantage of initially low interest rates but can cause dramatically higher payments when rates go up.

As an online interest calculator shows, a $200,000 home with a 30-year mortgage and a 6 percent interest rate would cost $1,199 a month. Increase the interest rate by 2 percent and that rises to $1,467 per month.

Also new to the market are “negative amortization” loans whereby the buyer pays less each month than even the interest that is owned.

Consumers of such loans clearly expect to make more money later to begin paying off the home itself — not just the interest owed on the loan — but that doesn’t always happen.

Responsibility key

A balance between personal and lender responsibility plays out here.

Greg Farnham is a regional sales manager for Wells Fargo who oversees about 250 loan officers statewide.

He says his bank just doesn’t do negative amortization loans.

“We don’t make loans if we’re not confident in the ability of the lender to repay,” he said.

But foreclosures aren’t caused by a single, “bad” type of loan, but happen when lending packages don’t mix with the home buyer.

Adjustable-rate mortgages can catch some by surprise, but Farnham said he’s had one all his life.

“It’s really an education process,” he says, echoing the comments of many banking and foreclosure prevention experts.

Getting out

Sometimes a solution is to work with your lender to find a new payment plan. That’s in your bank’s best interest.

“Foreclosures are expensive for us, too,” Nienow says.

So why do so many homeowners wait until the cusp of foreclosure before acting?

“It’s probably a pride factor,” Farnham said.

Another problem, he said, comes from the cooling real estate market.

By law, a homeowner in foreclosure has a six-month redemption period, providing some time to sell the house. But houses that haven’t appreciated in value can be much more difficult to sell, especially when few payments have been made.

The Mankato woman who lost her home to foreclosure wishes now she had taken a class on how to buy a home. That, and perhaps to declare bankruptcy to keep creditors away.

Foreclosure has been an emotionally draining experience.

It “strips you of your dignity, your credit ... everything,” the woman said as she turned to leave.





Avoiding foreclosure: Home buying tips

Before you buy a home, get educated. The mortgage company has some disclosure requirements, but the homeowner has more at stake than the lender.

Here is some advice, care of Julie Zachariason, a financial assistance counselor at Lutheran Social Service, and Greg Farnham, regional sales manager for Wells Fargo.

n Mankato offers an eight-hour class called Home Stretch. Of the 45 low-income, first-time homebuyers who have taken the class to qualify for state aid, none have gone into foreclosure, the city says. Go to www.hocmn.org to find a class near you.

n Your lender, too, may offer such “pre-purchase” counseling. And Lutheran Social Service offers its housing counseling to hundreds of people each year. Visit www.cccs.org/ housing.htm or call (888) 577-2227.

But if it’s too late for that, and you’re already behind on payments:

n Talk with your lender, which may offer what’s called “post-purchase” counseling. The bank would like nothing more than to keep collecting interest on your loan. But it can’t do that if you’re in foreclosure. So you can probably count on them to help you work out a solution.

n Consider refinancing your home. But this is also the place where we hear about “predatory” lenders taking advantage of people by promising to “save” your home while charging astronomical interest rates. Some experts advise against these loans in all circumstances.

n If you’re stuck in a loan you have no hope of paying off, consider just riding it out. By law, your foreclosure notice has to run in a newspaper six weeks before your house can be sold back to the lender. And even after that you have six months to live there without making payments.

n A “short sale” could be an option. Some lenders may allow you to sell the house for less than you owe. This allows home buyers to get out of the loan and lenders to avoid thousands of dollars in foreclosure costs.





At A Glance

What, exactly, is foreclosure? Most simply, it’s failing to pay a mortgage and eventually losing your home.

But, of course, it’s not that simple. Lutheran Social Services financial counselor Julie Zachariason fills in the holes:

n After two or three months of missed payments, foreclosure proceedings typically begin.

n A foreclosure notice, with the homeowner’s name and address, will run in your newspaper’s legal section for six weeks.

n During a “sheriff’s sale,” the property is auctioned off to the highest bidder. The lender typically sends a representative to reclaim the property, though any member of the public can outbid them.

n A “redemption period” of six months allows the homeowner to stay without paying rent before they can be kicked out.