Subprime market sees possible domino effect in Colorado market

GREELEY, Colo. — Amid the unraveling of the subprime mortgage industry, some real-estate experts are looking to Colorado as a portent of what other parts of the country could face.

In 2004, Weld County in northern Colorado had 1,155 properties foreclosed on, according to the public trustee's office. In 2006, there were 2,073.

Residents and city officials are starting to feel the trickle-down effect. Area construction companies and building-supply businesses have either had layoffs or left town. City officials are adjusting the annual budget's expected revenues for the second year in a row, after it became clear that building permits, construction sales and other related taxes would be generating $2 million less this year.

While losing $2 million from a $62 million general fund isn't catastrophic, the loss "makes us cautious about what happens if things continue this way," said Tim Nash, Greeley's director of finance. "We're looking at delaying construction of new roads, fewer city-sponsored community events, not as many recreational events for the public."

That concern is being shared across the country as Ohio, Indiana and Michigan edged in front of Colorado's lead, reporting higher rates of foreclosure filings in the last quarter of 2006, according to research by the Mortgage Bankers Association.

In the greater Detroit area, where residents face the downward spiral of the domestic auto industry, foreclosures are flooding into auction houses and banking centers. But interest in buying property in Detroit and numerous other Michigan communities is lackluster at best, said Ellen L. Coon, a Pontiac, Mich., attorney who specializes in foreclosures.

"There are 10 [houses] for sale in my subdivision alone that have been for sale at least a year," Coon said. "People are abandoning their homes in the middle of the night, leaving the keys on the counter. Investors aren't showing up, because they realize that even if they get an amazing deal on a property, they can't sell it."

A bedroom community an hour north of Denver and 30 minutes southeast of Fort Collins, Greeley attracted home buyers with its numerous parks and cheaper housing prices.

"We were seeing 3 percent in new housing stock from 1997 until 2002, then it went up to 4 percent," said Becky Safarik, Greeley's community development director. "Anything over 4 percent is difficult to handle. We had too much growth for too long."

Greeley wasn't alone in that boom of new construction, particularly during the late '90s technology industry boom. When the high-tech boom went bust, housing prices in the region stayed high, buoyed by subprime loans and other risky programs. The region's economy remained static, while other parts of the country rebounded.

So as the real-estate market and speculative lending practices began to erode nationwide, places like Weld County were among the first to falter.

State leaders are looking at the default problem with a set of three bills aimed to curtail fraud, prevent appraisal tampering and establish broker licensing. Colorado is one of the few states that does not license mortgage brokers, and state officials say the lack of oversight has led to mounting problems.

In one of the state's more high-profile scandals, a group of former inmates and others bought homes in an upscale Aurora, Colo., neighborhood two years ago, secured no-money-down loans and tapped accomplices to buy the properties at inflated prices.

One of the people in the group was Taiwan Lee, 25, who bought three properties as part of the scam — at a time when he was wanted by police for violating his parole on drug charges. After he was arrested and sent to state prison, Lee managed to purchase two more homes.

He and seven others were charged with siphoning $2.1 million on the sale of 17 houses and have pleaded guilty to a host of federal fraud charges tied to the scheme; the investigation is continuing.

"We need to go in and have a tighter rein over these people and the industry," said state Sen. Peter Groff.

Still, noted Groff, "folks have to understand that they have some personal responsibility for the situation they've gotten into. We can't legislate against bad decisions."