Friday, March 25, 2005

Foreclosure rates up, but national numbers better

Tom Locke
Denver Business Journal

Foreclosure rates in Colorado, a lagging indicator for the state's economic health, closed higher in 2004 than the previous year and in contrast to improving trends nationally.

Colorado's overall foreclosure rate still remains slightly below national rates, however. The rate at which Colorado mortgages are foreclosed upon on one- to four-unit residential properties was 1.10 percent as of Dec. 31.

That's the same rate recorded on Sept. 30, but 0.06 percent higher than the 1.04 percent at the end of 2003, according to a national delinquency survey released March 17 by the Mortgage Bankers Association in Washington, D.C.

The 1.10 percent was also nearly three times worse than the 0.42 percent rate at the end of 1999 and worse than the 0.80 percent at the end of 2002.

Colorado's slide contrasted with the national improvement, as foreclosure rates dropped to 1.12 percent at the end of the fourth quarter, compared with 1.14 percent at the end of the third quarter.)

"I think it comes back to jobs, jobs, jobs," said Wil Armstrong chairman of the Colorado Mortgage Lenders Association and vice chairman of Cherry Creek Mortgage, based in Greenwood Village.

After hearing about the foreclosure and loan delinquency numbers for Colorado, Armstrong said he was "actually generally encouraged." He said Colorado is still below the national average on both foreclosures and delinquencies.

However, Doug Duncan, economist with the Mortgage Bankers Association, said national numbers are made up of both "judicial" states and "non-judicial" states. "Judicial" states have court proceedings to process foreclosures while "non-judicial" states, such as Colorado, use quicker administrative proceedings.

Non-judicial states had a 0.86 percent foreclosure inventory at the end of 2004, while judicial states were at 1.42 percent. Because it takes longer for foreclosures to be handled in the judicial states, their inventories at the end of each period tend to be higher, Duncan said.

So if Colorado is compared only with those states using similar, non-judicial proceedings, its foreclosure rate of 1.10 percent looks worse than the 0.86 percent non-judicial average.

One problem area with mortgages nationally has been loans insured by the Federal Housing Administration. Those loans have had higher foreclosure rates because private-mortgage insurance products have become very competitive with FHA loans, luring away better-quality customers from the FHA loan portfolio, according to Duncan.

"Foreclosure inventory for FHA set an all-time record," he said.

At the end of December, the rate of FHA loans in foreclosure was 2.67 percent nationally and 2.64 percent in Colorado.
Colorado delinquencies improve

As for loan delinquencies, the percentage of all loans with installments past due was 3.33 percent in Colorado, which was worse than the 3.31 percent at the end of the third quarter but better than the 3.54 percent of a year ago.

Colorado's rate beat the nation's figure of 4.56 percent.

Duncan said there's a seasonality to delinquencies -- due to matters such as tax refunds -- making year-over-year comparisons more useful than comparisons of sequential quarters. He also said the non-judicial versus judicial issue may have an influence on delinquencies, but its impact is unclear.

"Overall, there's not really any problems on the [national] delinquency front. They continue their decline," Duncan said.

On a seasonally adjusted basis, the national loan delinquency rate dropped to 4.23 percent, down from 4.41 percent at the end of the third quarter and down from 4.49 percent a year ago.

Duncan said one of the troublesome numbers nationally was the slight rise in new foreclosure filings in the fourth quarter among all categories of loans. Nationally, the percent of all loans that had foreclosure started during the fourth quarter rose to 0.44 percent from 0.40 percent at the end of the third quarter.

Meanwhile, the percentage of new foreclosures to total loans in Colorado jumped even more, to 0.51 percent at the end of December from 0.44 percent at the end of the third quarter.

It's still too early to see if the increase in new foreclosure filings in the fourth quarter is going to be part of a trend, Duncan said.

On a national basis, the rise in new foreclosure procedures might be attributed to the increasing percentage of sub-prime loans and ARM (adjustable rate mortgage) loans versus total loans, since those two categories of loans tend to have higher delinquency and foreclosure rates.

Another factor putting upward pressure on foreclosure rates is the maturation of mortgages that were refinanced in the last few years, since delinquencies on mortgages tend to be highest when the loans are 3 to 5 years old.

Despite those factors, Duncan foresees job growth nationally causing "moderate declines in delinquencies over the next few quarters," he said in a March 17 conference call.

Armstrong, of the Colorado Mortgage Lenders Association, said he foresees Colorado's foreclosure trend continuing. The foreclosure rate will "probably bounce around a little bit," but stay around 1.10 percent, he said.

"Some might argue a higher interest environment might push them [foreclosures] up a little bit," Armstrong said. He said long-term rates are starting to move higher, having increased about half a percentage point since the middle of January. If there's not a big increase, however, he doesn't foresee a large impact from interest rate rises.

On the plus side, the state is seeing better job growth, Armstrong said, and that "ultimately gets reflected in delinquencies and foreclosures."


At 7:29 PM, Blogger Stuff You Should Know said...

I can't say I disagree.


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