Colorado Mortgage Lenders Dispute Housing, Foreclosure Crisis

The Colorado housing market leads the nation in foreclosure rates - that should be enough to prove there’s a serious problem in the state, right?

Not so fast, say Colorado mortgage lenders.

The foreclosure crisis is not nearly as dire as it was in the late 1980s, according to a recent analysis.

“We’re not saying that foreclosures are not a serious problem, because it is a problem. But the world is a different place than it was in 1989,” when the previous foreclosure crisis peaked, said Chris Holbert, president of the Colorado Mortgage Lenders Association, to The Rocky Mountain News.

While a record number of homes are being returned to lenders compared with 1989, he noted that the state’s population, the number of houses on the market and the number of mortgages issued have far outpaced the rate of foreclosures. For instance, from 1989 to 2005, the population of the state grew by an estimated 42 percent.

In the third quarter of 1989 - “the worst time in Colorado history for residential mortgage loan foreclosures” - there were 8,923 foreclosures, accounting for 3.1 percent of all mortgage loans, Holbert said.

That record number jumped by 2,916 - or almost 33 percent - to 11,839 in the second quarter of this year. But the larger number accounts for only 1.2 percent of Colorado home loans.

“As a percentage of loans, we’re less than half of where we were in 1989,” noted Jim Lewis, president of Clarion Mortgage Capital and chairman of the lender association’s board.

In fact, the mortgage lenders group contends that Colorado may not have the highest foreclosure rate in the nation, as a national report by RealtyTrac contends.

Lewis and Holbert said they aren’t sure RealtyTrac’s numbers are accurate. According to a second-quarter report by the Mortgage Bankers Association, there are a dozen states where a greater percentage of their loans are in foreclosure than in Colorado.

The Ohio housing market tops the list at 3.12 percent.

Kathi Williams, director of the state’s division of housing, also recently voiced concerns that RealtyTrac, which sells lists of foreclosed homes, is overstating the foreclosure rate in Colorado.

In Colorado, about 40 percent of the homes that enter the process never actually go through a foreclosure, she said. Often, the lender will accept a “short sale,” in which he/she takes less than the mortgage amount rather than go through a foreclosure auction. Borrowers in trouble conceivably can also can pay off the entire mortgage, agree on home mortgage refinancing or sell the house.

“I’ve got some bad news for you,” said Rick Sharga, of RealtyTrac. “Across the board, on average, about 60 percent of the homes in our database do not make it to the actual auction. So if only 40 percent of your homes don’t make it to the full foreclosure, you’re even worse off.”

He said that RealtyTrac tracks the numbers differently than the Mortgage Bankers Association, but that the group compares data consistently nationwide.

“Our data is as accurate as the county records,” Sharga said.

Meanwhile, mortgage broker Phil Heter, whose company only sells foreclosed homes on behalf of lenders and Fannie Mae, said that while there are huge differences between now and 1989, there appears to be no end to the number of foreclosed homes hitting the Denver-area market.

“We were busy before, but it was like they just opened the faucet wide open 90 days ago,” Heter said.

However, unlike the late 1980s, foreclosed homes aren’t driving down values in neighborhoods, he said. That’s bad news for investors who would like to pick up homes for 20 cents or 30 cents on the dollar, as they could in the late 1980s.

“If the home is well-maintained and in good shape, we sell it pretty close to the market rate,” Heter said.