Jump in Foreclosures in Denver Reflects Failed Modifications

by Donald Hanz on cities

The surge in foreclosures in Denver and in other cities in Colorado in the first four months of this year reflected the weaknesses of the federal Home Affordable Modification Program, based on reports from the Colorado Department of Local Affairs-Housing Division and the Treasury Department.

The staggering 54-percent spike in completed Colorado foreclosures from 4,354 in the first three months last year to 6,686 units in the first quarter this year meant that a lot of distressed homeowners who were given opportunities to work out their loans under HAMP failed to do so.

Treasury officials said that the number of Colorado homeowners who were able to qualify for the HAMP trial modification in April decreased by 18 percent from 10,929 in March to 8,932 in April.

With the thousands of distressed homeowners in need of loan modifications but failing to get help, it is expected that homes notified of default eventually enter foreclosure auctions.

Among the reasons cited by bank representatives are lack of documentation, lack of stable income, inadequate income and refusal of mortgage investors to approve loan modifications.

Housing advocates, however, insist that a lot of mortgage lenders are not really committed to the HAMP scheme, although they recognize the reality that a big percentage of borrowers whose loans have been modified redefaulted again.

Housing officials, meanwhile, explained that the foreclosure moratoriums implemented in the early months of 2009 accounted for the lower numbers in the first quarter of 2009, thereby increasing the rate of increase in foreclosures in the first months of this year.

In the first quarter, a total of 802 foreclosures in Denver were posted. This marked an increase of 9.7 percent from 731 in the same quarter in 2009 but a sharp drop of 40 percent from the record 1,339 posted in the first quarter of 2008.

In the Denver-Aurora metro area, there are currently 8,256 mortgages in the modification process. A total of 5,491 are in the trial stage and 2,765 are already in permanent modification. Among the large metro areas in Colorado, the Denver area has the highest number of mortgage loans currently in modification.

Nationwide, trial modifications are also slowing. The number of mortgages in trial modification dropped by 18 percent from 780,922 in March to 637,353 in April. But the most telling indication of the weakness of HAMP is the staggering number of trial loan cancellations. A total of 277,640 were cancelled in April, a spike of 79 percent from the 155,173 cancelled in March.

These cancellations contributed to the surge in bank repossessed homes in many states in April. A total of 92,432 homes throughout the country became bank foreclosure properties during the month, accounting for 27.7 percent of total foreclosure filings.

As HAMP efforts failed, banks accelerated their foreclosure actions so they could take back the properties and resell them quickly, minimizing their maintenance and other holding costs.

Despite HAMP cancellations, housing counselors are still trying their best to help distressed homeowners benefit from the program and slow down substantially the rising pace of foreclosures in Denver.