Colorado foreclosure rate still No. 1 in U.S.

One in every 494 households affected

John Rebchook, Rocky Mountain News

Wednesday, May 17, 2006

For the second consecutive month, Colorado has the dubious distinction of having the highest foreclosure rate in the nation, the latest sign that the weak, lower-priced housing market continues to plague the economy.

The report by RealtyTrac Inc. of Irvine, Calif., shows that 3,706 homes in Colorado were in some state of foreclosure in April.

That equates to one of every 494 households in foreclosure, according to RealtyTrac. The national average is one of every 1,268 households.

Colorado retained the No. 1 spot even though the number of foreclosures dropped by 31 percent from March, when 5,392 homes were in foreclosure.

"There's a perfect storm" driving the high number of foreclosures, said Mary Wenke, public trustee of Arapahoe County. In April, her office opened 436 foreclosures, compared with 288 in April 2005.

Wenke said adjustable rate mortgages, whose interest rates are beginning to rise, will mean even more foreclosures in coming months. Among the factors driving the numbers:

• A record glut of unsold homes on the market.

• Huge credit-card debt held by homeowners.

• Homes purchased with no down payments.

• Pre-payment penalties on rising ARMs.

• A record number of bankruptcies.

• Mortgage fraud, which can involve investors, lenders, title insurance companies, real estate agents and appraisers, according to public officials and other experts.

"Home foreclosures are part of a vicious cycle," Wenke said. "You hear all of these figures that our economy is coming back and our unemployment rate is low, but this is the one sector that remains a huge problem."

Byron Koste, who heads the University of Colorado Real Estate Center, said rising foreclosures are a "caution flag for those who are saying we have recovered and we're back."

Koste said foreclosures mostly have hit the entry-level market.

"It hasn't really occurred in Boulder, because it is so expensive that there isn't any entry-level housing," Koste said. "And it has not affected the second-home market, at least not yet. Maybe that is down the pike."

Ben Fiedler, owner of Cherrywood Properties, said it's unfair to paint the entire housing market with the foreclosure brush. Foreclosures primarily are concentrated in the northeast market in Adams County and in north Aurora, he said.

"The overall market is going to continue a steady rise, as it has been for the last few years," Fiedler said. Many people losing their homes had two- and three-year adjustable rate mortgages and purchased their homes in recent years with no down payment, he said.

"The problem is buyers who have tons of debt are getting mortgages that are too large for them," Fiedler said. "It is too easy to buy a home."

The geographic areas plagued by foreclosures will be hammered even harder in coming months, he said. But he said foreclosed homes still are too expensive to make sense for investors.

"I'd say they need to fall by another 20 percent," he said. "That absolutely will happen."

Paul Parker, owner of a We Buy Ugly Homes franchise, stays away from foreclosures.

"Everyone assumes we buy foreclosures," Parker said. But only two of the approximate 100 homes his office has bought in the past four years were in foreclosure, he said. He looks at about 30 homes each month, with hopes of buying three, he said.

He said too many people have attended seminars on how to make millions by buying foreclosed homes, and they are bidding up the prices. Also, foreclosed homes tend to have legal issues that have to be resolved, he said.

Texas had the most foreclosures in the nation, with a total of 13,829 in April, according to RealtyTrac. That equates to one foreclosure for every 582 homes.

rebchookj@RockyMountainNews.com or 303-892-5207