6. HRSR 03-07-2011ITEM # 6.
City of
~.
Elk
....River
MEMORANDUM
TO: Housing Redevelopment Authority
FROM: Annie Deckert, Marketing & Business Development Director
DATE: 7 March 201 I
SUBJECT: Speaker- Laura Ostlie, Lutheran Social Services (LSS)
The HRA partnered with the Minnesota Home Ownership Center in October of 2008 to create
and distribute informational materials regarding free foreclosure prevention assistance and
resources to various businesses, organizations and churches in the community. Since then, staff
has continued to give presentations at local organizations and community forums, in addition to
speaking with Ed Nelson, from the MNHOC to educate the community about the free foreclosure
prevention counseling that's available to our residents.
Foreclosure prevention counselors from Lutheran Social Services (LSS) assist those in our
community. Staff has invited Laura Ostile, from LSS to give a brief presentation regarding her role
as a foreclosure prevention counselor. Ms. Ostile has been a HUD certified housing and a
National Foundation for Credit Counseling (NFCC) certified credit counselor with LSS Financial
Counseling for the last three years. She currently works out of the Willmar and St. Cloud offices,
providing both in person counseling sessions and phone appointments.
In addition to her presentation today, Ms. Ostile will be joining staff in presenting at the 3`d
Community Foreclosure Forum on March 19``'
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FREE Communi
Foreclosure Foru
Date :Saturday March 19th
Time : gam o 11am
Locution :Elk River YMCA,
13337 Business Center Drive NW, Elk River
Topics will Include:..
. `Most recent local Foreclosure Statistics
City' Foreclosure Strategies
...FREE Foreclosure Avoidance Programs
-Life After Foreclosure
Avoid Forec/osure Scams
• Investment Opportunities
And Much More...
_..
Be a Hero irr'our Community. Pass along this informs ion to help
Someone learn how to avoid foreclosure and start a securefinancial future.
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Troy Oxford, McClatchy Tribune
Stuck in a house you can't afford or can't sell
for more than you owe on it?
.Beware the Web, where you'll see plenty of
claims that short sales will save your credit,
simple as that. But there's nothing simple
about deciding whether to sell your house in
a foreclosure or in a short sale, which. means
you sell the property for less than you owe
the bank. And in most cases, going through.
either process will wreck your credit score.
"Both short sales and foreclosures are
considered negative by the score, because
our data shows us it's very predictive of
future credit risk," Tom Quinn, Minneapolis-
based Fair Isaac Corp.'s vice president of
FICO scores, said. "The claim that doing a
short sale is not going to hurt your score is
false. it's inaccurate."
Credit scores, which are designed to assess
how likely it is that consumers will uphold
their side of the bargain, look at the severity
(are we talking bankruptcy or a late car
payment?), frequency (have you skipped a
payment once, or have you missed a bunch?),
and recency (did. you miss a payment last
In both short sales and foreclosures, "you
made a lender eat a big number," said Alex
Stenback, a mortgage banker with Residential
Mortgage Group in Wayzata.
That's not to say that there aren't some
instances where short sales are better. If a
borrower is current at the point of a short
sale, for instance, then the consumer's credit
score won't sink as far as it would have if he
hadn't made a mortgage payment for six
months. Still, Fair Isaac says that the benefit
from. not having prior delinquencies on file
pales when compared with the hit a score
takes from a short sale.
Dan Williams, program. director for LSS
Financial Counseling Service, says this
widespread notion that short sales are better
for credit is a big problem because it deters
some people from going into foreclosure
when. that would be the best option for them.
In Minnesota, homeowners can stay in their
houses for six months after the foreclosure
sheriff s sale. Factor in the fact that many
banks don't start foreclosure proceedings
right after the third. missed payment, and
families can potentially stay in a house for
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more than a year rent-free, hopefully saving
that mon. ey to help them. get back on their
feet. This could amount to thousands of
dollars.
Housing counselors say that most clients
have credit scores in the basement already.
"If you've got a poor credit score and are
doing a short sale to preserve your credit, it's
ridiculous," Williams said. And it's happening
"every, every, every day."
Lf you're having mortgage trouble, seek help
right away from a housing counselor or an
attorney. Realtors are the go-to
professionals to learn about the local
housing market and what it takes to sell your
home. But they aren't credit experts, and I'd
get a second opinion if anyone is telling you
that a short sale will save your score. And
don't pay someone a lot of money if they
promise to quickly rehab your credit score
after foreclosure. Credit scores are forgiving
-- over time.
'A major hit'
Both FICO and its credit scoring competitor
VantageScore have released estimates for
what happens to consumers' credit scores
when they make mortgage missteps. In the
VantageScore study, a homeowner with an
otherwise clean record who then has a short
sale sees their credit score drop between
1.20 and 130 points (on a scale of 501.-990)
compared with between 130 and 140 points
if the same homeowner ends up in
foreclosure.
For a homeowner whose credit report is rife
with late payments on everything from credit
cards to car loans, a short sale would ding t
hem for between 15 to 25 points compared
with between 10 and 20 points for a
foreclosure. Customers with. rotten scores
will see smaller point drops than someone
whose score is good, because the score
already has taken into account the lower-
scoring customer's risky behavior and
adjusted the score downward.
FICO's example found short sales and
foreclosures will set you back between 140
and 160 points if your credit score is a
respectable 780 (on a scale of 300 to 850}, or
between 85 and 1.05 points if your credit is
680.
Even if you. do your homework, you.
ultimately can't control how your housing
woes are reported to the credit bureaus. For
example, mortgage servicers may report your
situation to the credit bureaus using different
codes that could be interpreted more or less
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favorably by FLCO, Quinn said.
What if your circumstances change and
you're able to save your home from a
foreclosure?
"Once you've got a foreclosure starting to
track on your credit file, you're taking a
major hit," even if you ultimately save your
house, said Sarah Davies, a VantageScore
senior vice president.
Credit scores play such a central role in
consumer's lives. Yet it's so hard to
understand them that people can end up
making disastrous choices based on myths
that are taken as fact. It's certainly not a
catchall solution, but Congress should at
least grant consumers free access to their
credit scores, an idea which is currently
being floated at the Capitol.
Kara McGuire • 61.2-673-7293 •
km.cguire@startribune.com 1
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26,000 Minnesotans lost their
homes in 2010
Foreclosures rose 11 percent in
201.0 as more than 26,000
Minnesotans lost their homes.
By JIM BUCHTA~, Star Tribune
Last update: February 10, 2011 - 9:18 PM
Officially, the recession is over.
Manufacturers are building again, consumers
are occasionally spending and. the stock
markets are reaching highs not seen in more
than two years.
But the foreclosure crisis is far from over.
During 2010 almost 26,000 Minnesota
homeowners packed up their houses, gave
their keys back to the bank and watched
their houses be sold at a sheriffs sale. Lt was
an 11 percent increase over the previous
year, the second-highest number on record
and four times what it was in 2005,
according to data compiled by HousingLink
for the Minnesota Home Ownership Center.
"Staggering," is how Julie Gugin, executive
director of the Minnesota Home Ownership
Center, described. the numbers.
Also on Thursday, RealtyTrac said that
foreclosure nationwide rose 1 percent during
January. Filings in Minnesota were down 8.5
percent compared with. last year, mostly
because of delays caused by a slowdown in
the way foreclosures are processed,
RealtyTrac said.
Still the Home Ownership Center report,
which was based on sheriff sale data, offers a
somber warming for the broader housing
market, which despite a dismal 2010 had
appeared to stabilize in recent weeks.
Foreclosures have a devastating effect on the
overall housing market, pulling prices down
and flooding the market with hard-to-sell
inventory.
The foreclosure increase is also a sign that
improvements in the broader economy aren't
trickling down to many individuals.
"While some economic indicators are
pointing in a positive direction, many people
and neighborhoods are still deeply mired. in
the recession and aren't seeing a
turnaround," said Steve Cramer, executive
director for Project for Pride in Living, a Twin
Cities-based affordable housing nonprofit.
Cramer said that he sees the fallout from
foreclosures on a day-to-day basis in
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neighborhoods that had seemed. on the
upswing prior to the housing crisis but are
now giving back some of the gains.
Though there are certain neighborhoods in
the Twin Cities that have been. particularly
hard-hit, Cramer said that this is an issue
that has implications for the health. of the
entire state. Aside from causing a drag on
home values, foreclosures cause declines in
property tax revenue, they cause trouble for
schools and. they make it difficult for families
to function in a healthy way.
"Our region is really one economy, and the
weakest areas diminish the strongest and
impact the overall. quality of life here," he
said.
In the metro area, foreclosures increased 9
percent from 2009 to 2010; in greater
Minnesota there was a 16 percent increase.
The highest foreclosures rates, were in so-
cal.led "collar" communities surrounding the
metro area. During the building boom, "drive-
until-you-qualify" home buyers traded a long
commute for the opportunity to own a home.
Many of those buyers were first-timers who
were already living on tight budgets and
couldn't keep up after losing a job. They
often put little money down, giving them no
equity, as home prices sunk.
The worst was Sherburne County, where the
foreclosure rate is almost 3 percent.
Many foreclosures during the first couple of
years of the crisis -- there were more than.
26,000 in 2008 -- were the result of
mortgage and other kinds of fraud. That's
not necessarily the case anymore. Experts
widely agree that the latest wave of
foreclosures is being driven by
unemployment and underemployment,
meaning workers have had their hours cut
and they can't find other work to make up
for the lost income.
"Until we see protracted periods of job
creation, we will see elevated numbers of
foreclosures," said Ed Nelson, spokesman for
the Home Ownership Center.
In outstate Minnesota, the problem is
particularly acute in smaller communities
that don't have diverse economies that are
able to rebound after a business closes.
Crystal. Pastien lives in one of those places:
Eden Valley, a town of about 800 people
that's northwest of St. Cloud with only a few
businesses, including one that relies on temp
workers when there's business to support it.
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Pastien said that she knows of at least five
friends who have lost their house to
foreclosure, and in just the past couple of
weeks she helped move a friend and her two
young daughters to a rental house after the
one she owed. $140,000 on sold at a sheriffs
sale for just $36,000 after a modification.
plan. didn't get approved.
"It was bad and hard for me to see it," she
said of the experience. "But they had false
hope that something was going to happen,
but it wasn't."
Pastien could have been in the same boat.
After losing a job and refinancing out of an
adjustable-rate mortgage, she was on the
"brink" of foreclosure for a year and a half
before persuading her lender to recast her
mortgage.
After adding $1.5,000 in fees to the mortgage,
she now owes $102,000 on a house that's
worth $62,000.
"At least I saved my house," she said.
Jim Buchta • 61.2-673-7376
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