Foreclosure numbers falling, but there’s more to the story

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While the Colorado Division of Housing released figures last week indicating that foreclosures have peaked and are on their way down across the state, some local real estate and foreclosure experts are skeptical.

The figures showed that foreclosures dropped 27 percent across the state to their lowest level in two years, about 19 percent in El Paso County.

Realtor Ken Westfall, who handles a number of foreclosed properties in Colorado Springs, said he doesn’t believe the statistical change represents real change, but rather a slower-moving system that will ultimately drag out the market’s recovery.

Ryan McMaken, spokesman for the division of housing, said he suspects some of the drop represents real market improvement, but admits that much of it could be the result of policy changes last year as a result of complaints that banks and lending institutions sped through the foreclosure process without all of the required documentation and had unqualified employees sign documents — a practice dubbed ‘robo-signing.’

“The statistics are deceiving,” Westfall said. “The defaults right now are at an all-time high. It’s shadow inventory.”

Shadow inventory is a real estate term that has typically referred to bank-owned properties that are not to put on the market, Westfall said. But lately agents have used the term to refer to all of the homeowners who defaulted on their loans who are going through a lengthy process to attempt to keep their houses before they’re formally foreclosed on.

Westfall said he estimates that only half of current defaulted loans are in foreclosure.

“Some will get modified loans,” he said, “some won’t. Some will be short sales or deed transfers and some will end up being foreclosures after all.”

All of the extra mediation and care going into helping people keep their homes is slowing recovery, Westfall said.

“I think this will drag out,” he said. “I’m anticipating at least another three years of this.”

He said the true indication of the residential real estate market turning around would be a surge in new building permit applications.

Attorney Stephen Brunette agreed that a drop in foreclosures is probably the result of policy changes, but he maintains that those changes were necessary and there should be more of them.

Brunette wasn’t ready to discuss his thoughts on the market in detail, but said he plans to propose legislation to lawmakers before the next state session that would increase proof requirements and mandate greater mediation efforts to prevent homeowners from losing their houses to foreclosure.

While El Paso County’s rate of one foreclosure sale for every 390 households puts it solidly in the middle of the state’s 64 counties, and there is nothing remarkable about the foreclosure rate here, there are some different trends.

“They got going in 2006 like everybody else,” McMaken said of foreclosures here, “but El Paso County didn’t peak in 2007 like most everybody else.”

Throughout the state, most metropolitan areas saw a lull in foreclosures in 2008 between spikes in 2007 and 2009.

“El Paso didn’t have that reprieve the rest of the state did,” McMaken said. “I have no idea why foreclosures would have grown unabated like that through that period.”

He speculated that perhaps the military troops were still at war and hadn’t started returning yet to buy homes. It could also have been a bout of devastating job loss in the technology industry, he said.

And now, while new foreclosure filings are trending down in El Paso County like the rest of the state, they only dropped 19 percent compared to 27 percent statewide and 41 percent in Denver County, according to the report.

“That may mean that things aren’t improving as quickly there as they are in other parts of the state,” McMaken said.

Teller County foreclosures only dropped 9 percent and at a rate of one foreclosure sale for every 220 homes, it’s the 10th worst in the state.

McMaken attributes that difference to Teller County’s mountain location. Foreclosures started later in Colorado’s mountain communities, likely because they are wealthier areas with older residents who saw the impacts of the economic collapse later than the rest of the country, McMaken said.

Foreclosure rates and home prices are the most depressed in mountain counties now, he said. But even in many of those areas, the number of foreclosures has dropped.

“I really think they’ve peaked at this point,” McMaken said of foreclosures. “Unless you get a bunch of layoffs down there, I don’t think they’ll go back up to where they were in 2009.”

He said that troops returning to the El Paso County area and a tightening rental market would most likely lead to a real estate market recovery.