LOST HOMES:

How the Housing Crisis has hit the East Side and
North End of St. Paul
May 2012

Table of Contents:
Introduction

Subprime Mortgage Lending

Foreclosures

Vacant Houses

Home Values

Recommendations

10

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INTRODUCTION & SUMMARY OF FINDINGS:

The subprime mortgage meltdown has resulted in a record number of foreclosures and plunged the United
States into the worst financial crisis since the Great Depression. St. Paul has not been immune from this
crisis, and the North End and East Side neighborhoods have been hit the worst.
Subprime lenders targeted lower-income and minority homeowners for high cost loans. In some cases, the
subprime lenders were owned or bankrolled by mainstream financial institutions such as Wells Fargo and
US Bank, whose loans were more likely to be in predominantly white neighborhoods.
One out of every six of the refinance loans made by Wells Fargo on the East Side and North End were
made by its finance company Wells Fargo Financial. In contrast, Well Fargo Financial accounted for
just one out of every fourteen of Wells Fargos refinances in the Twin Cities metro area.1
Subprime loans stripped homeowners of their wealth and led to an epidemic of foreclosures.
The number of foreclosures in Ramsey County skyrocketed from 632 in 2005 to a peak of over 3,000 in
2008.2 Although the number of foreclosures has passed its peak, it appears that there will be thousands
more in the next few years.
Since last April, the East Side and North End have had more foreclosure filings and sales than other
neighborhoods in St. Paul.3
Foreclosures ravaged neighborhoods and left behind a trail of vacant homes.
There are over 1,200 vacant residential buildings in St. Paul.4
Ward 7 has more vacant buildings than any other ward in the city.5
Over 60% of the vacant residential buildings are in Wards 5, 6, and 7.6
The unprecedented numbers of foreclosures and vacant homes caused a steep and continuing
decline in home values throughout the city, but especially in minority neighborhoods.
Homes in the East Side, North End, and Thomas-Dale neighborhoods experienced the greatest loss
of value, dropping 50% since 2006, whereas homes in the Mac-Groveland, Highland, and St. Anthony
Park neighborhoods lost the smallest percentage of their value, less than 20%.7

LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

SUBPRIME MORTGAGE LENDING

A number of reports have documented the startling racial
and economic disparities in mortgage lending. Residents
of low-income and minority neighborhoods were much
more likely than residents in upper income and predominantly white neighborhoods to receive a high-cost subprime
loan.8

This created a shameful pattern of profiteering; preying on

the most vulnerable among us, and creating a devastating
impact on already-struggling neighborhoods.
o One out of every six of the refinance loans made by Wells
Fargo on the East Side and North End of St. Paul (Wards 5,
6, and 7) were made by its finance company Wells Fargo
Financial. In contrast, Well Fargo Financial accounted for
just one out of every fourteen of Wells Fargos refinances
in the Twin Cities metro area.10

The vast majority of subprime loans were for refinances,

rather than home purchases. For instance, from 2005 to
2007, Wells Fargo Financial made a total of just two home
purchase loans in the entire Twin Cities metro area.9 Subprime loans were promoted as a way to consolidate debt, Wells Fargo
provide money for home improvements, or for household
or personal needs, rather than being sought by borrowers as In July 2011, the Federal Reserve Board assessed an $85
a way to lower their interest rates or lock in a fixed rate.
million civil penalty against Wells Fargo, the largest fine the
Federal Reserve has ever imposed in a consumer case.11 The
There are circumstances where refinancing to use some Federal Reserve charged that between 2004-2008 Wells
of the equity in ones home makes sense, but cash-out re- Fargo Financial steered customers into more expensive subfinances were rife with potential for abuse by lenders. Too prime loans even though they qualified for better rates. As
often homeowners with significant amounts of equity were part of its settlement with the Federal Reserve, Wells Fargo
convinced to refinance under conditions that left them con- will have to repay up to $200 million to customers that it
siderably worse off than they were before. In some cases, overcharged.12
homeowners were sold refinance loans which produced
just a few thousand dollars in cash at closing, but which re- Previously, the Illinois Attorney General sued Wells Fargo
financed their existing mortgages at higher rates, high fees, for steering African-American and Latino homeowners to
and often with abusive loan terms.
higher cost subprime mortgages while giving white borrowers who had similar incomes lower cost loans. The suit
While subprime lenders sometimes appeared to be small- charged that Wells Fargo drained wealth from families and
time storefront operators, the masters behind subprime neighborhoods and added to the stockpile of boarded-up
lending could be found among some of the worlds largest homes . . . 13
financial institutions. Sometimes these institutions had
direct ownership of subprime lending subsidiaries, such as An analysis of Wells Fargos lending practices in the Twin
Wells Fargo and Wells Fargo Financial. In other cases, these Cities suggests a pattern of subprime lending with dispainstitutions bankrolled subprime lenders by investing in rate impacts on minority neighborhoods. Wells Fargo has
them directly, such as with US Bank and New Century Fi- served upper income and predominantly white neighbornancial.
hoods through its bank, providing prime loans with good
terms and low rates. In contrast, Wells Fargo has served
The refinance loans made through the bank had greater con- low-to-moderate income and minority neighborhoods discentrations in predominantly white neighborhoods, while proportionately through its finance company, Wells Fargo
the loans made through the subprime lender were more Financial, which makes higher rate subprime loans.
concentrated in lower-income and minority neighborhoods.

LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

US Bank
US Bank was a major investor in New Century Financial,
the poster child for bad practices in the mortgage industry. By 2007, when the company filed for bankruptcy, New
Century was the second largest subprime mortgage lender
in the country.14
In 1998 and 1999 when it was difficult for subprime lenders
to raise capital, US Bank came to New Centurys rescue and
invested $40 million in the company. US Bank reaped a
profit of nearly $18 million from this investment within just
a few years.15
In contrast to US Bank, New Century, which made loans
with high rates and enormous fees, made a large percentage of its loans to minority neighborhoods. From 2004 to
2006, New Centurys last year of business, almost half of the
refinances New Century made in St. Paul were in minority
neighborhoods. Whereas just 14% of US Banks refinances
in St. Paul were in minority neighborhoods.16
Wells Fargo & Wells Fargo Financial Refinance Loans in St. Paul:17

US Bank & New Century Refinance Loans in St. Paul:

LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

FORECLOSURES
The number of foreclosures in Ramsey County sky- The regulators found that mortgage servicers were
rocketed from 632 in 2005 to a peak of over 3,000 in only reaching a minority of delinquent homeowners
2008. Although the number of foreclosures has passed with their foreclosure prevention efforts.
its peak, Ramsey County still experienced over three
Nearly three years into the foreclosure crisis, we
times more foreclosures in 2011 than in 2005, and it
find that more than 60% of homeowners with seriappears that there will be thousands more in the next
ously delinquent loans are still not involved in any
few years.
loss mitigation activity.24
A recent Star Tribune article noted that there may be
an increase in foreclosures coming in Minnesota. The As the foreclosure crisis has exploded, mortgage serarticle attributed the decline in foreclosures in part to vicers have failed to adequately meet the number of
the hold that lenders put on foreclosures due to the delinquent homeowners. In a recent GAO survey of
robo-signing scandal, and quoted a real estate expert non-profit housing counselors, for example, seventywho said that theres definitely another round of fore- six percent of the counselors reported that overall
their clients had a negative or very negative expeclosure coming down the pipeline.18
rience with the mortgage servicers. The most comForeclosures in Ramsey County19
monly cited problems were of homeowners receiving
inconsistent or confusing information, speaking to a
Year:
2005 2008 2011
different representative each time they called, of serNumber of Sheriff s Sales: 632 3,023 2,078
vicers losing their paperwork, and of the decisionThe areas in the Twin Cities that have been the most making process taking too long.25
affected by foreclosures are the North Side of Minneapolis and the Payne-Phalen neighborhood on St. Even worse, the Office of the Comptroller of the CurPauls East Side.20 In St. Paul, the zip codes with the rency (OCC) conducted examinations of the foreclomost foreclosure activity since last April are all on the sure processes of US Bank and Wells Fargo and found
that both banks engaged in unsafe or unsound pracEast Side.21
tices26, such as:
Zip Code
Foreclosure since April 2011
55106
406
Filing legal affidavits in which bank employees made
55119
229
assertions that they claimed, falsely, were based on
55117
214
personal knowledge or review of the relevant records
According to a national study by the Center for Re- Filing numerous affidavits courts that were not
sponsible Lending approximately 8 percent of Af- signed in the presence of a notary
rican-American and Latino families have lost their Failing to devote adequate oversight, internal conhomes to foreclosure compared to 4.5 percent of white trols, policies and procedures to their foreclosure profamilies.22
cesses
Failing to sufficiently oversee outside lawyers and
Many of these foreclosures can and should be avoided. other third-parties handling foreclosures
A report from state regulators stated:
In addition the OCC found that Well Fargo:
[T]oo many homeowners experience foreclosure Initiated foreclosures without always ensuring that
when finding an alternative solution would be in the mortgage documents met legal requirements
interest of both the homeowner and the mortgage Failed to devote sufficient financial, staffing and manholder. Preventing these unnecessary foreclosures agerial resources to its foreclosure processes
would help not only the struggling homeowners and
mortgage investors, but also the neighborhoods and
local governments that bear the indirect costs of
foreclosures.23
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

VACANT HOUSES
Foreclosures not only impact the individual homeowners
but also local governments, neighbors, and other property
owners. Especially when a foreclosure leaves a home vacant
and unsecured, it can cost cities and counties tens of thousands of dollars.

where he had gone to settle a drug debt. In December, a

homeless man died after starting a fire in a vacant house in
Minneapolis.28
In contrast to St. Paul, Minneapolis has many fewer vacant
buildings and charges property owners a much higher vacant building fee.

Foreclosures result in decreased revenue for cities and counties through lower property values, delayed and uncollected
taxes, and unpaid services. At the same time that foreclosures City Properties on Citys Vacant Building List29
mean less revenue for cities and counties, they also impose
additional requirements to those cities and counties for in2004 2008 2012
creased policing, building inspection, demolition, property
St. Paul
370
2,000 1,291
maintenance, and managing the foreclosure process.
Minneapolis 286
857
851

After peaking in 2008, the number of vacant houses has Vacant Building Registration Fee30
started to decline, but there are still almost four times more
St. Paul
$1,200
properties on St. Pauls vacant building list than there were Minneapolis $6,985
in 2004.
If St. Pauls vacant building registration fee were the same as
27
Vacant and Boarded Buildings in St. Paul
that in Minneapolis, it would result in over $7 million a year
Year
2004 2008 2012
in extra revenue for St. Paul.31
Buildings
370
2,000 1,291
The vacant buildings are disproportionately concentrated
on the North End and East Side of St. Paul.
Over sixty-percent of the vacant residential buildings are in
Wards 5, 6, and 7.
The largest number of vacant residential buildings in St.
Paul is in Ward 7.
Ward

7
6
1
5
2
4
3

#Vacant Residential Bldgs

293
238
228
226
143
63
22

% of total vacant

24.1%
19.6%
18.7%
18.6%
11.8%
5.2%
1.8%

Vacant homes have been the site of numerous crimes. In addition to burglary and trespassing, there have been several
high profile incidents in St. Paul recently. In March, police
charged nine men and teens with dragging a 14 year old girl
into a vacant home and sexually assaulting her. That same
month, a man was killed on the porch of a vacant home
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

HOME VALUES
The unprecedented numbers of foreclosures and vacant
homes caused a steep and continuing decline in home values throughout the city, but especially in minority neighborhoods.

A recent report from the Pew Research Center found that

the bursting housing bubble and the decline in home values
and equity resulted in decreases in average American household wealth of:33
r
66% for Latinos from $18,400 to $6,300
r
53% for African-Americans from $12,100 to $5,700
r
16% for whites from $135,000 to $113,000

From 2005 to 2009 the median level of home equity that

Latino homeowners had nationally was cut in half from
$99,983 to $49,145. For African-American homeowners,
the median level of home equity declined from $76,910 to In St. Paul, homes in the Daytons Bluff, Payne-Phalen,
$59,000 during this period. For white homeowners, it de- North End, and Thomas-Dale neighborhoods experienced
creased from $115,364 to $95,000.32
the greatest loss of value, dropping 50% since 2006, whereas
homes in the Mac-Groveland, Highland, and St. Anthony
Park neighborhoods lost the smallest percentage,
dropping less than 20%.34
In total, St. Paul has lost over $6.1 billion in home
value, which could drain $46.3 million in annual
tax revenue from Ramsey County and $15.5 million in annual tax revenue from the city.35

Single Family
Home Prices

Change from
2006 to 2011

Neighborhood

April 2006

January 2012

Thomas Dale
Daytons Bluff
Payne Phalen
North End
Greater East Side
Battle Creek
St. Paul City
West Side
Summit-University
West 7th
Midway
Como
Merriam Park
St. Anthony
Macalester-Groveland
Highland
Summit Hill

$168,000
$170,500
$182,000
$180,500
$186,50
$207,500
$205,300
$187,000
$212,800
$186,500
$196,500
$233,000
$305,100
$341,500
$306,000
$301,500
$490,200

$77,600
$81,900
$93,200
$95,200
$99,900
$113,200
$122,600
$112,400
$133,500
$117,400
$130,600
$167,600
$225,500
$268,900
$245,500
$247,000
$408,200

LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

Dollar %

-$90,400
-$88,600
-$88,800
-$85,200
-$86,600
-$94,300
-$82,700
-$74,600
-$79,300
-$69,100
-$65,900
-$65,400
-$79,600
-$72,600
-$60,500
-$54,500
-$82,000

-53.8%
-52.0%
-48.8%
-47.3%
-46.4%
-45.5%
-40.3%
-40.0%
-37.3%
-37.1%
-33.5%
-28.1%
-26.1%
-21.3%
-19.8%
-18.1%
-16.7%
9

RECOMMENDATIONS
1) The state of Minnesota, counties, and cities should
adopt a foreclosure mediation program to prevent unnecessary foreclosures.

3) Local governments, school boards, and public agencies should require that any banks they do business with
meet responsible lender criteria that includes using best
practices for foreclosure prevention.

There is growing recognition of the effectiveness of foreclosure mediation programs in preventing unnecessary foreclosures. The number of states and municipalities that have
such programs continues to grow, and there are now jurisdictions in 24 states that have foreclosure mediation.

4) Local governments, school boards, and public agencies should require that any banks they do business publicly disclose information regarding its foreclosures, including:
a. The number of homeowners eligible for loan modificaForeclosure mediation benefits all of the involved parties:
tions
- Servicers avoid a long and costly foreclosure process since b. The number that received or were denied permanent
more than 70 percent of mediated cases reach a settle- modifications
ment.36
c. The principal and/or rate reduction in each modifica- More than half of homeowners in mediated cases get to tion
keep their homes, while those for whom that is not a sus- d. A breakdown for each of the above categories by the race,
tainable option also benefit by negotiating a graceful exit ethnicity, and census tract of the
in how and when they move out.
homeowners.
- For government, mediation can reduce the number of vacant homes and stabilizes property values and tax revenue. 5) Mortgage servicers should comply with the following
In 2009 the Minnesota legislature passed the HomeownerLender Mediation Act which would have required lenders
to offer homeowners the opportunity to participate in nonbinding mediation before the lender could foreclose, however Governor Time Pawlenty vetoed the bill.37

best practices for foreclosure prevention:

a. Stop foreclosure proceedings while they are evaluating a

borrowers eligibility for a loan modification or other foreclosure prevention options
b. Respond within 72 hours to requests or inquiries about
loan modifications
Under the Act, lenders would have been required to serve c. Ensure that the loan modification process takes less than
a mediation notice to the homeowner and filed proof of it 30 days
with the Attorney Generals office. Homeowners would d. Modify troubled loans so that they are for no more than
have 20 days after this to file a request for mediation. If the the value of the home
homeowner does not request it, then the lender could pro- e. Allow tenants of foreclosed properties to continue to rent
ceed with the foreclosure.
the property until it is sold
f. Take steps to ensure that its loans are not being used for
Although a state level mediation program would be optimal property flipping or foreclosure rescue scams.
in that it could benefit from an economy of scale and would
serve the largest number of homeowners, cities and counties can implement their own mediation programs.
2) Minneapolis charges property owners $6,985 annually to register vacant buildings, while St. Paul charges
just $1,200.
The city of St. Paul should increase its vacant building registration fee to offset the significant costs to the city of vacant
buildings, but also to reduce the number of vacant buildings
by spurring owners to sell or rehab their properties.
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

10

WORKS CITED
1 Home Mortgage Disclosure Act data from 2004-2006
2 Foreclosures in Minnesota: A Report Based on County Sheriff s Sale Data, February 15, 2010, Housing Link, p. 8
3 Realtytrac.com, Foreclosure statistics for pre-foreclosure, auction, and bank-owned properties,
4 Data from city of St. Paul Vacant Building Registration List March 12, 2012, 846 single family, 307 duplexes, 64 multi-family
5 Data from city of St. Paul Vacant Building Registration List March 12, 2012
6 Data from city of St. Paul Vacant Building Registration List March 12, 2012
7 Zillow Home Values Index, calculated March 21, 2012
8 Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures, Debbie Gruenstein Bocian, Wei Li, Carolina Reid, Center for
Responsible Lending, November 2011, p. 11. Income is No Shield Part III. Assessing the Double Burden: Examining Racial and Gender
Disparities in Mortgage Lending, National Council of Negro Women and National Community Reinvestment Coalition, June 2009, p. 1.
Unequal Opportunity Lenders? Analyzing Racial Disparities in Big Banks Higher-Priced Lending, Andrew Jakabovics and Jeff Chapman,
Center for American Progress, September 2009, p.1.
9 Home Mortgage Disclosure Act data
10 Home Mortgage Disclosure Act data
11 Wells Fargo, Countrywide Mortgage Settlements Give Homeowners a Bit of Relief, Daily Finance on AOL.com, Catherine New, July 22,
2011
12 Up to 10,000 customers, up to $20,000 each, equals $200 million
13 July 31, 2009 Press Release, Madigan Sues Wells Fargo for Discriminatory and Deceptive Lending Practices
14 New Century, Biggest Subprime Casualty, Goes Bankrupt, Bloomberg, April 2, 2007, Bradley Keoun and Steven Church.
15 U.S. Bancorp Profits Handsomely from Its Investment in New Century, National Mortgage News, March 11, 2002, Brad Finkelstein
16 Home Mortgage Disclosure Act data
17 Based on Home Mortgage Disclosure Act (HMDA) data for first lien conventional refinance loans
18 More home foreclosures on horizon in Minnesota, Star Tribune, Jim Buchta, April 16, 2012
19 Foreclosures in Minnesota: A Report Based on County Sheriff s Sale Data, February 15, 2010, Housing Link, p. 8, and 2011 Foreclosures
in Minnesota: A Report Based on County Sheriff s Sales Data, February 24, 2012, p. 5
20 Fostering Equitable Foreclosure Recovery, Sarah Treuhaft, Kalima Rose, and Jennifer Tran, Policy Link, January 2012, p. 14
21 Realty Trac. Includes pre-foreclosure notices and sheriff s sales
22 Speculators, Not CRA, Behind Foreclosures in Black Neighborhoods, September 7, 2011, American Banker, John I. Gilderbloom and
Gregory D. Squires
23 Analysis of Mortgage Servicing Performance, Data Report No. 4, January 2010, State Foreclosure Prevention Working Group
24 Redefault Rates Improve for Recent Loan Modifications, State Foreclosure Prevention Working Group Memorandum on Loan Modification Performance, August 2010
25 GAO-11-367R Survey of Housing Counselors about HAMP, May 26, 2011, United States General Accounting Office
26 United States of America, Department of the Treasury, Comptroller of the Currency, Consent Order AA-EC-11-18 In the Matter of US
Bank National Association, and United States of America, Department of the Treasury, Comptroller of the Currency, Consent Order AAEC-11-19 In the Matter of Wells Fargo Bank N.A.
27 In housing meltdown, cities turn into buyers, Star Tribune, Chris Havens, February 7, 2010 and City of St. Paul vacant building list as of
March 1, 2012, http://www.stpaul.gov/index.aspx?NID=2272
28 Vacant houses not always emply, Star Tribune, April 30, 2012, Chao Xiong.
29 In housing meltdown, cities using federal money to address foreclosures, Star Tribune, September 18, 2010, Chris Havens, City of St. Paul
vacant building list as of March 1, 2012, http://www.stpaul.gov/index.aspx?NID=2272 , and Minneapolis List of Vacant and Condemned
Properties as March 2, 2012,
http://www.ci.minneapolis.mn.us/www/groups/public/@regservices/documents/webcontent/convert_254314.pdf
30 Minneapolis Directors Fee Schedule, p. 6
31 The Minneapolis annual fee is $5,546 higher than the St. Paul fee. There are 1,291 vacant buildings current on St. Pauls vacant building
registration list. $5,546 x 1,291 = $7,159,886
32 Wealth Gap Rise to Record Highs Between Whites, Blacks, Hispanics, Pew Research Center, July 26, 2011
33 Wealth Gap Rise to Record Highs Between Whites, Blacks, Hispanics, Pew Research Center, July 26, 2011
34 Zillow Home Values Index, calculated March 21, 2012
35 According to Zillow.com, the value of the average home in St. Paul has declined $82,700 from April 2006 to January 2012. There are 74,000
single family, duplex, triplex, condo units, and townhomes in the city of St. Paul, according to the Wilder Research Centers Census Facts.
This calculates to a total of $6.1 billion in total lost home value. Using the Ramsey County tax rate of 1.01% of a homes value, the loss in
value means $61.8 million in lost property taxes. The city receives about 25% of the total property tax. http://www.stpaul.gov/DocumentView.aspx?DID=17200
36 Walk the Talk: Best Practices on the Road to Automatic Foreclosure Mediation, Alon Cohen, Center for American Progress, November
2010
37 Minnesota AG to push for Foreclosure Mediation, Housing Wire, Jon Prior, January 8, 2010
LOST HOMES: How the Housing Crisis has hit the East Side and North End of St. Paul

10

This study was published by ISAIAH, a faith-based coalition of more than 100
member congregations that works for economic and racial justice throughout the
State of Minnesota.
2720 East 22nd Street Minneapolis, MN 55406 | (612) 333-1260 | www.isaiahmn.org