Poor lending practices and not poor economic conditions are behind Denver’s foreclosure wave, according to a comprehensive study from the city’s Office of Economic Development.
“It is not a matter of people being out of a job,” said Abdul Sesay, the study’s co-author. “The mortgage payment is higher than what people can afford from their jobs.”
Denver’s foreclosure rate shot up from 0.8 percent of homes in 2000 to 5.9 percent in 2007 and is expected to keep rising this year.
Job losses, falling wages, declining home values and a declining population, important drivers of foreclosures two decades ago, don’t explain the current surge in people losing their homes.
Instead, high-interest rate loans made to low-income borrowers represent the bulk of those defaulting.
Denver neighborhoods especially hard-hit by foreclosures between 2000 and 2007 include Mont bello, northeast Park Hill, Globeville and Westwood.
Nearly 70 percent of mortgages made in 2005 that went delinquent were valued at $100,000 to $200,000.
The average age of a mortgage going into foreclosure declined from 7.4 years in 1994 to 2.5 years in 2005, and a large share of loans made in 2006 failed within a year.
In one of the more surprising findings, nearly one out of every five Denver homes foreclosed on between 2001 and last September had previously entered the foreclosure process.
The study recommends improved homebuyer education to explain mortgage products and to dispel the myth that homeownership is a risk-free investment.
The study also suggests that down-payment assistance be combined with interest-rate buy-downs to help low-income borrowers avoid subprime loans. Denver should step up enforcement of code violations and consider buying distressed properties in the most depressed neighborhoods, the report also recommended.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
