Loan problems surface early

Most foreclosures come within three years of purchase

John Rebchook, Rocky Mountain News

Thursday, March 8, 2007

Coloradans who lose their homes to foreclosure typically haven't lived in them very long.

An analysis of foreclosures in 2006 for the Colorado Bankers Association released Wednesday found that, on average, homes that went into foreclosure had the loans in place for only 987 days - slightly less than three years.

The study was conducted by Development Research Partners, headed by economist Patty Silverstein. The group examined 374 loans, priced from $9,000 to $6.1 million.

The sample is statistically accurate and geographically balanced, said Don Childears, president and CEO of the association.

Experts say that many people took advantage of super-low mortgage rates in the early 2000s after the economy cooled and rates fell to the lowest point in generations. Many people who could not have qualified for loans in the past locked into adjustable rate mortgages with super-low initial teaser rates. Many people also took advantage of programs that required no down payments or refinanced all of the equity out of their homes.

Now that rates are moving upward, but home prices are not, many of the buyers can no longer afford their mortgages.

The report found that the average and median bank loans that went into a foreclosure were $220,987 and $145,725, respectively.

Nonbank loans, which accounted for 77.5 percent of the loans in foreclosure, had an average price of $201,536 and a median price of $161,354.

"This shows that for the most part it is not the high-end loans that are ending up in foreclosure," Childears said.

He said the data will be provided to legislators.

Chris Holbert, president of the Colorado Mortgage Lenders Association, said it is not a surprise that most of the loans in foreclosure were made by nonbanks because about 70 percent of mortgage loans nationwide are made by mortgage brokers.

But, he said, "I would not take from this study that you are at a three times greater risk of foreclosures or default if you get a loan from a nonbank."

Childears said it "confirmed a hunch" that banks have fewer foreclosures, but he said that wasn't the purpose of the report.

"We wanted to look at the exact kind of ARMs people in foreclosures were getting, the terms of the ARMs, the economic factors that drove them into a financial crisis - such as a divorce or loss of job - but that just was too difficult. There was no way to track it."

rebchookj@RockyMountainNews.com or 303-954-5207