Colorado suffers from a high foreclosure rate today partly because the national lending industry misread the Denver market, an economic-development expert told a Denver task force on foreclosures.
Lenders engaged in “parachute financing” throughout the West, swooping in, believing there was money to be made in fast-growing states with rising house prices, Tom Clark, a vice president of Metro Denver Economic Development Corp., said Thursday.
But while house prices continued to climb in cities such as Phoenix and Las Vegas, Denver already had the “highest house prices in the country for a city without a coastline,” he said.
Lenders turned increasingly to adjustable-rate mortgages and 100 percent loans to make homes available “to a lot of highly vulnerable buyers,” he said. “We had high-risk instruments, high-risk buyers and no appreciation rates” in house prices. “That set us up for what we’re seeing today.”
Clark suggested that job growth in the Denver area will be the quickest way to recover from a foreclosure wave that gave Colorado the highest foreclosure rate in the nation last year.
At the end of 2006, “we finally washed out all the jobs we lost in 2002 and 2003,” he said. “The key comes down to job growth. If you don’t have job growth, you don’t have houses.”
Denver City Council members Michael Hancock and Rick Garcia created the task force to see what role a city government could play in helping reverse a foreclosure crisis that has ravaged some neighborhoods. Thursday’s meeting was the first of six planned to discuss potential remedies.
At the opening session, two speakers from Montbello, a neighborhood in Hancock’s district, described how the effects of hundreds of foreclosures spread through the entire neighborhood.
“A rampant number of foreclosures causes property values to decline,” harming elderly residents whose houses are a key asset to survival, said the Rev. James Fouther, pastor of United Church of Montbello. He said the foreclosures also raise demands on food banks, destabilize families and damage the image of the neighborhood.
When the community’s reputation suffers, “predatory lenders like payday lenders are more likely to pop up,” he said.
Helen Trujillo-Wulfers, the principal at Ford Elementary, said she has noticed a higher turnover of students as home foreclosures climb.
“I worry about the students who leave,” she said. “I would say the children probably lose six weeks.”
Kathi Williams, director of the state Division of Housing, warned that Colorado’s foreclosure epidemic is far from over.
“We have over 37,000 loans delinquent in Colorado as of today,” she said, including more than 10 percent of all subprime loans to higher-risk borrowers.
