| Federal Reserve study sheds light on Denver foreclosures Denver Business Journal - by Renee McGaw Denver Business Journal |
| Denver's foreclosure situation isn't as bleak as it's often portrayed, according to a new study made available Tuesday by the Federal Reserve Bank of Kansas City. Forty-six percent of the adjustable-rate mortgage loans in the Denver metro area hadn't reset as of December 2007, according to the report. But a decline in short-term interest rates in January and February should help those borrowers avoid painful rate readjustments. "The biggest news really ought to be that the resets that everybody is watching this year may have less effect now, because of the overall decline in the interest rate environment," said Mark Schweitzer, branch executive of the Denver branch of the Kansas City Fed and one of the authors of the report. "The London Interbank Offered Rate [LIBOR] has declined to below 3 percent, and that means a reset is going to be in the vicinity of 8.8 percent." That is an improvement over much of 2007, when LIBOR -- a key international interest rate that serves as a benchmark for many adjustable-rate mortgages -- was near 5.4 percent, which made resets over 11 percent likely in Denver and Aurora. "The news last year was focusing on double-digit interest rates, and that was certainly possible last year," Schweitzer said. Other findings in the report: - Denver-area subprime loan originations peaked earlier than the nation, in 2005, and very few subprime loans were originated in 2007. As of December 2007, more than 65 percent of the pool of outstanding subprime loans in Denver and Aurora were originated in 2005 or 2006.
- More than 60 percent of Denver-area subprime loans are current, although Denver leads the nation in foreclosed houses already owned by lenders. Of the houses still in borrowers' hands, Denver-Aurora delinquencies are similar to or below the national average, suggesting that future foreclosure rates will be more similar to the national average.
- Denver-area subprime loans had lower down payments, but Denver borrowers had a higher average Fair Isaac & Co. (FICO) credit score, at 629, than the average U.S. FICO score of 617.
- Denver-area subprime loans are more likely to have adjustable rates than the nation as a whole. More than 78 percent of Denver-area subprime loans have adjustable rates, compared with 65 percent of national subprime borrowers. But Denver-area borrowers didn't receive a very low "teaser" rate -- the average initial rates for Denver-area loans was 7.3 percent, compared with 8 percent nationwide.
"Denver generally had a little lower-than-average interest rate," Schweitzer said. "The initial rates on a subprime adjustable-rate loan tended to be just barely lower than the initial rates on a subprime fixed loan." |
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