John Dugan (Photo: Harry Connolly)

… [C]urrent market disruptions have clouded the accomplishments that CRA has generated, many of which we recognized last year during its 30th anniversary. There are even some who suggest that CRA is responsible for the binge of irresponsible subprime lending that ignited the credit crisis we now face. Let me squarely respond to this suggestion: I categorically disagree. While not perfect, CRA has made a positive contribution to community revitalization across the country and has generally encouraged sound community development lending, investment, and service initiatives by regulated banking organizations. CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA.

Dugan, a 2005 Bush appointee, also served the Department of Treasury under the first President Bush, and was Republican general counsel to the U.S. Senate Committee on Banking, Housing, and Urban Affairs. His remarks (full transcript) came during the Economic Community Partners annual meeting in Baltimore.

In some good news for a change, there could be a slowdown to the rising trend that’s affecting the metro area more so than any other Minnesota region. The Subprime Foreclosure Deferment Act (SF3396) was approved by the Senate this weekend in a one-vote margin. The bill will help about 12,000 Minnesotans stave off foreclosure by requiring those with eligible subprime loans to pay either 65 percent of the payments due when the loan defaulted, or the minimum monthly payment when the mortgage was first created, whichever is less.

But the bill still faces a major hurdle: Pawlenty has said he’d likely veto it, claiming that it will dry up credit and force other homeowners to pay more for their mortgages. The irony in that thinking, consumer experts like bill author Prentiss Cox say, is that foreclosures cause foreclosures. Each foreclosure causes property values to decline and forces many homeowners into negative equity. In fact, according to the Center for Responsible Lending, one in three homeowners nationwide will see their property values drop by an average of $5,000 as foreclosures continue to eat away the market. In the Twin Cities, homeowners have already seen prices decline by ten percent this year. 

According to the most recent data from the city’s Regulatory Services Division, there are 503 abandoned homes on the north side alone. In fact, 10 neighborhoods in the city’s Fourth Precinct are dealing with about 40 abandoned homes apiece. By comparison, all of South Minneapolis (the city’s Third Precinct) has 77 homes on its vacant list. Neither number is good. But 503 abandoned homes for a part of town that’s home to only about 50,000 residents is eye-popping.

Continued: Click “Read more.” To be sure, these properties aren’t simply houses homeowners moved from and are waiting to sell. These are buildings that the city housing inspector has determined to be either condemned or unoccupied and unsecured. They are deserted homes that have landed on the city’s “249/VBR Program List” (Vacant Building Registration Program) and are considered “nuisance properties,” subject to abatement action by the city. Abatement actions include “removing the nuisance,” or in other words, demolishing the property.

Registering a vacant property with the city doesn’t come without a hefty price: Minneapolis recently raised its Vacant Building Registration fee from $2,000 to $6,000, effective March 17. That fee is applied to the property taxes, so if there ends up being a regular sale on the home, the new homeowners are stuck with the payment.

And what about the lenders who own the properties? According to Kellie Jones in the Regulatory Services Division, it is unclear whether the assessments and fees are paid for properties that are simply transferred back to the bank after the foreclosure-redemption period.

The alarmingly high number of abandoned homes in North Minneapolis is in direct correlation to that part of the city’s disparate number of foreclosures. Homes in the north side’s 55411 ZIP code have a foreclosure rate of 5.06 percent, according to a study released last week by local nonprofits Housing Link and the Housing Preservation Project. That’s seven times higher than the rate for Hennepin County as a whole. And it’s atypical for urban areas, too: The seven-county metro area has a foreclosure rate of only 0.69 percent.

Some of the homes on the north side’s VBR list have been there since 2006. And even more were added at the end of the summer of 2007, when foreclosures skyrocketed. Since the beginning of the year, 40 new deserted homes have made the list. And according to the city’s Problem Properties Unit, more are being added every day.