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Fewer FHA-backed loans foreclose

Agency tries to keep people in their homes, official says

John Rebchook, Rocky Mountain News

Published June 27, 2007 at midnight

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More than twice as many homeowners with subprime loans than those with Federal Housing Administration-insured loans end up in foreclosure, both in Colorado and the U.S., a HUD official said Tuesday in Denver.

However, many of the borrowers for both subprime and FHA-insured loans are first-time buyers with less than stellar credit, said Brian D. Montgomery, assistant secretary for housing and the federal housing commissioner for the U.S. Department of Housing and Urban Development. The FHA is part of HUD.

"We serve at-risk borrowers," said Montgomery, a keynote speaker at a homeownership preservation forum at HUD's Denver office. Montgomery oversees the $400 billion FHA insurance portfolio.

"The key is the FHA's loss-mitigation program," Montgomery said. "We want to keep people in their homes."

In May, Colorado had 6,495 FHA-insured mortgages in default and 247 FHA-insured mortgages foreclosed. That is in stark contrast to the late 1980s, when HUD was the largest landlord in the Denver area, with more than 15,000 foreclosed homes in its portfolio.

In the late 1980s, FHA-insured loans accounted for about 65 percent of all the mortgages in the Denver area, said Mike Rosser of the Colorado State Housing Board, but now they account for less than 5 percent.

Montgomery said he would like people with subprime loans facing foreclosure to refinance into safer FHA-insured loans.

Subprime loans made a few years ago typically had low teaser rates that are now starting to skyrocket.

However, many subprime loans carry hefty pre-payment penalties, making them financially impossible to refinance.

"That is our biggest hurdle," Montgomery said.

Colorado is facing a record 37,000 foreclosures this year, 30 percent more than 2006 levels.

However, as a percentage of mortgages on the market, the foreclosure crisis was still worse following the oil bust in the late 1980s, said Chris Holbert, president of the Colorado Mortgage Lenders Association and one of the panel members.

Montgomery said Colorado ranks about 10th in the nation for its foreclosure rate.

FHA foreclosures

• Colorado FHA-insured mortgages foreclosed per fiscal year:

FY 2007 to date (8 months)    1,951

FY 2006   2,974

FY 2005   2,913

FY 2004   2,329

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