One in 25 state homeowners could default, report says

By John Rebchook, Rocky Mountain News (Contact)

Published October 13, 2008 at 11:20 p.m.

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At least one out of every 25 homeowners in Colorado is likely to end up in foreclosure in the next two years, according to national analysis by a independent nonprofit group.

Only three other states, Nevada, Arizona and California, are projected to have a higher ratio of foreclosures because of subprime mortgages than Colorado, according to the Pew Charitable Trusts report. Pew, founded in 1948, runs the third-largest think tank in Washington, D.C.

The report, "Defaulting on the Dream, States Respond to America's Foreclosure Crisis," also projects that home values in Colorado will drop by $3.1 billion over the next two years.

Homes in 16 other states are projected to lose more value than in Colorado.

California is expected to be hammered the hardest by losses because of subprime loans that end up in foreclosure. California homes are projected to lose $107.2 billion in value, almost a third of the total projected $356.3 billion in home value erosion.

"This is a pretty conservative look at the impact of foreclosures, because we're only looking at subprime loans, and not picking up foreclosures from alt-a loans," said Kil Huh, project director at the Washington, D.C., and Philadelphia-based Pew. Alt-a loans are considered less risky than subprime loans, but more risky than prime loans, which are those to the highest-rated borrowers with larger down payments.

Also, the Pew analysis looked at owner-occupied homes in each state, while other reports, such as RealtyTrac, spreads the number of foreclosures among all homes, including rentals, so the percentage of homes in foreclosures may be higher.

"The number is within the realm of possibility," said Ryan McMaken, spokesman for the Colorado Division of Housing.

Based on the Pew's numbers, the decline in value in Colorado works out to $2,507 per household, he notes. By contrast, the loss in value per household in California is $15,093, $11,257 in Nevada, $7,179 in Florida and $5,703 in Arizona.

When Pew compared each state's foreclosure rate to its total number of mortgages - using Mortgage Bankers Association data - Colorado did not rank in the top 10. California was No. 1, with 13 percent of U.S. mortgages and 14 percent of U.S. foreclosures.

• October 15, 2008

  8:36 a.m.

  Suggest removal

  WarrenJimmyBuffett writes:

  "At least one out of every 25 homeowners in Colorado is likely to end up in foreclosure in the next two years, according to national analysis by a independent nonprofit group. Only three other states, Nevada, Arizona and California, are projected to have a higher ratio of foreclosures because of subprime mortgages than Colorado, according to the Pew Charitable Trusts report."

  I'm waiting for the spin on this real estate agents. What do you tell your clients? "Don't worry, foreclosures don't cause home values to decrease?" This is an unwinding nightmare.

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