The standard profile of a mortgage that went into foreclosure in Colorado last year: an adjustable-rate loan with an average value of $202,000 made by a nonbank lender between 2003 to 2005.
That’s the conclusion of a survey of 374 randomly chosen foreclosure filings released Wednesday by the Colorado Banker’s Association.
“These are not big loans on high-end properties,” said Don Childears, president of the Colorado Bankers Association.
They also aren’t, for the most part, loans being made by banks. Only about 22 percent of foreclosed loans in the study were originated by a bank or bank affiliate.
The bulk of mortgages going bad in Colorado are originating with nonbank lenders who don’t have the same regulatory oversight that banks face.
A growing number of “subprime” lenders nationwide that targeted less credit-worthy borrowers have closed their doors, curtailed their lending activity or have suffered large drops in their stock market value in recent weeks.
Concerns are also emerging about rising delinquencies in the next tier above subprime loans, known as Alt-A.
Foreclosures are having a ripple effect throughout the Front Range economy.
Yet local banks are in a healthier position than they were during the last real estate downturn in the late 1980s, said Patricia Silverstein, president of Development Research Partners, which conducted the study for the CBA.
Back then, banks and thrifts held many of the loans that went bad in the state, leaving them vulnerable to failure or takeovers by larger regional banks.
Depository institutions, including banks, accounted for about 58 percent of the dollar value of all mortgages originated between 2000 and 2004, according to a Federal Reserve study.
The CBA study found that the average age of a loan going into foreclosure was only 2.8 years, and that borrowers had paid down 3 percent of the mortgage amount. Nearly 8 out of 10 of the foreclosures involved adjustable-rate mortgages.
Many ARM loans adjust to current interest rates three or five years after the original loan. But some are going bad well before that.
“You may be looking at people who couldn’t handle the original payment,” Childears said.
Although banks aren’t holding the bulk of the defaulting loans, rising foreclosures can lower home values generally, reducing value of the collateral that banks do hold. The Office of Federal Housing Enterprise reports only a 16.8 percent increase in existing home values in the metro area over the past five years.
Resale data is showing a decline in existing home prices in recent months.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
