A Colorado fund used to loan money to families taking care of relatives with developmental disabilities received little oversight for more than two decades and is now burdened with default rates 10 times the national average for consumer loans.
For 23 years the Family Support Loan Fund has been the source of hundreds of thousands of dollars in low-interest loans that families have tapped for upgrades to their homes, modifications to cars or other projects to accommodate special-needs children and relatives.
The loan terms are generous. Someone with a 620 credit score, deemed below sub-prime by today’s standards, can take up to five years to repay the unsecured note at less than 1 percent interest. Yet nearly half the 98 loans currently outstanding from the fund are in default — 41 of them totaling $242,722 — with several more close to failure, a Denver Post review of the program found.
When the number of defaults is compared against the 357 loans made since the program began, the default rate tops 10 percent. Nationally, consumer credit default rates on nonmortgage loans hover around 1 percent.
“The number of defaults made it clear it was more of a grant than a loan fund,” said Marc Williams, spokesman for the , which took over control of the loan program in fiscal year 2014-15. It had been managed for years by the Department of Human Services.
“We have 98 loans out there right now and 41 are in default,” Williams said. “Thatap a high rate.”
Some of the defaulted loans the state is trying to collect date back to the program’s first days in 1993, records show. And although state law requires the fund to be audited yearly, The Denver Post found that little more than a cursory review of paperwork gets done at irregular intervals.
Some families have defaulted without ever having made a single payment while another 57 loans totaling $406,550 remain active, though a handful are close to default because payments are so far behind, records show.
In one case, an $8,000 loan taken in 2011 to consolidate the borrower’s other debts was to be repaid within four years. More than half the note remains unpaid five years later, state records show. In another, from 2010, less than $200 of the original $8,000 borrowed has been repaid, records show.
In some cases, borrowers who later defaulted had used the money to consolidate other bills that, if unpaid, could have severely damaged the borrower’s credit rating. The Post has already reported that state’s main collection agency, Colorado Collection Services within the Department of Personnel Administration, because of a transition to a new computer system.
“What disturbs me is the lack of an annual audit and the question is why has it not been done,” said Sen. Kent Lambert, a member of the Joint Budget Committee that approves the state budget and a proponent of responsible government spending. “If this fund is out of sight and out of mind, how do we really know whatap going on with it?”
Citing medical privacy laws, the state refused to release detailed information about the loans or its borrowers. Similarly, the state would not provide U.S. Bankruptcy Court case numbers for a handful of borrowers who went broke and whose loans were later discharged as part of the public bankruptcy process.
The state offered The Post general information such as loan amounts, whatap owed, when loans were issued, and which ones are in default.
The state acknowledges the collection problems, saying itap working harder at ensuring only those able to repay the loans will be allowed to borrow.
Today about 70 percent of all loan applicants are rejected by a three-person board that reviews the paperwork, records show. Itap unclear what the rejection rate was under the Department of Human Services.
Any family eligible for the program can apply for the loan, no matter their economic situation. A maximum $8,000 can be borrowed and the highest interest rate ever charged a borrower was 2.94 percent in 2010, records show. Today’s rate: 0.97 percent.
By law, the loan pool is replenished each year with state general fund dollars as well as principal and interest payments from outstanding loans. As of June 30 there was about $91,000 in the account, state records show.
The law that created the fund mandates a yearly audit, but officials concede they’re not sure how that should be handled.
“Unlike many other statutes, this statute provides no level of specificity on how that audit should be completed,” Williams said in an email.
Whatap resulted is a review of only the active loans, where an accountant looks over information such as “borrower loan amounts, principal amount due, interest paid and last payment made,” Williams said.
If someone is behind, the accountant sends along a letter telling the borrower they are in arrears. After several unsuccessful attempts, the delinquency is handed over to the state collections agency.
Though the state says it has receipts for all purchases made with loan funds, itap unclear whether those purchases were for approved items, and records are so poorly kept and in such disarray that officials concede itap difficult to tell what receipts belong to which loans.
The number of loans in default has been rising over the past five years, long after the economic collapse that tanked the nation’s real estate markets in 2007 and crushed consumer credit.
Although 14 defaults have occurred in the past five years, none are of loans made since the Department of Health Care Policy and Financing took over, though payment records of loans it approved indicate a handful are already in jeopardy.
Families caring for a child with disabilities in Colorado can receive Medicaid funds Parents raising a child in a wheelchair might apply for a loan to remodel their bathroom so they can give their child a shower. Or seek funds to purchase a ramp to load a wheelchair into a van.
determine the eligibility of families applying for loans and forward applications to the state for review and approval.
More borrowers have come from the state’s largest boards and those borrowers have the highest number of defaults. The boards don’t track loans or the repayment process, but they are not precluded from providing the services that borrowers pay for with loan funds.
“There’s really no feedback and we don’t know if they got a loan,” said Randy Brodersen, executive director of North Metro Community Services in Westminster. “Usually we learn by word of mouth.”
North Metro clients account for eight of the loan defaults — nine others are active loans — second to Developmental Pathways in unincorporated Arapahoe County, whose clients account for 10 of the defaults, records show. Pathways clients have another 10 loans that remain in good standing.
“Itap not that surprising to me that we have that many in default in Adams County,” Brodersen said. “Should it be a grant program? I would guess that is a matter of thought. We have (clients) with little or nothing, and others who have a half-million-dollar home.”
