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ARCHIVED  November 5, 1999

Foreclosures tell tale of two economies

Regional notices of election and demand — the first indicators of foreclosure proceedings — are on the rise. The number of foreclosures issued to Larimer and Weld county homeowners has steadily climbed in the last four years, from a combined 193 in 1995 to 490 in 1998.

On the surface, these figures signal a potential downswing in the economy. But the underlying numbers may suggest something else: Indicators that historically have been higher in Larimer County than in Weld, such as foreclosures per capita and building permits, are shifting in Weld County’s direction.

“In general, credit problems (such as foreclosures and bankruptcies) track how well the economy is doing,´ said John Green, a prominent regional economist with the U.S. Department of Agriculture and faculty affiliate of Colorado State University. “When the economy is doing well, numbers should be way down. When the economy is in recession, those problems should be way up.

“But the thing I’ve noticed about bankruptcy data in Colorado,” he added, citing economic lows in the early 1980s and 1991,”is it seemed to be way down in 1991 and has since been going up. It’s sort of counter-intuitive.”

Regional foreclosure trends are not quite so counter-intuitive, but skewed somewhat to the left of national economic trends, reaching regional highs and lows two to three years ahead of national recessions and booms.

Larimer County foreclosures swelled to 451 in 1982 as the nation’s recession crested, dropped slightly in 1983 and then rose sharply over the next five years to peak at 952 in 1988 — three years in advance of 1991’s economic woes.

Weld County followed a similarly shaped, but less-pronounced curve over that time-period, increasing from 262 in 1982 to highs of 571 and 519 in 1987 and 1988.

Projections for 1999 indicate that Weld County residents will accrue more notices of foreclosure (at least 20 percent more) than Larimer County residents for only the second time since 1978. Estimated year-end results for the total number of foreclosures in both counties (505) suggest regional numbers will continue their upward creep, but Larimer County’s year-end projection of 227 notices of election and demand would actually be a 14 percent decrease from 1998.

Meanwhile, Weld County notices of foreclosure will have jumped up a projected 20 percent by year’s end. By 1999, any regional trend of increasing foreclosure rates may be confined to Weld County.

Per capita rates for notices of election and demand offer further evidence of Weld County’s increasing share of the region’s foreclosures. Prior to 1991, Larimer County’s foreclosures per capita rate was higher than Weld County’s, but in almost every year since (1993 was the only exception), rates of foreclosures per capita have been higher in Weld than Larimer.

Matt Revitte, broker partner with Pro Realty Inc. in Greeley, attributes the increase in Weld County foreclosures to subprime (high-risk) lending. “I would say the majority of foreclosures I’ve seen are B- and C-type paper, meaning to begin with, these are marginal borrowers whose credit is less than spectacular and who pay a higher interest on their loans.

“When things are good,” he explained, “everyone wants a piece of the action. About 85 percent of all potential individuals that can buy a house are B- and C-type people, so the market for marginal borrowers becomes a large untapped market, and lenders and investors go after it.”

Darrell McAllister, president of 1st Choice Bank, which has branches in both counties, has seen neither an increase in subprime lending nor an appreciable increase in foreclosures, but he offered two important points:

1) A prime (A-type) borrower for a $100,000 mortgage may become a sub-prime (B- or C-type) borrower if he or she tries to take out a $200,000 loan. This raises a point made by Dorothy Elder, director of relocation services at Sears Real Estate in Greeley: “People are getting over their heads because the economy is so good,” she said. “They start living up to the expectations of the Joneses, and then they can’t hack it.”

2) The per-capita income is higher in Larimer County than Weld, and the margin is widening. From 1989 to 1995, the median household income in Larimer County rose 37 percent (from a U.S. Census bureau estimate of $30,245 to $41,313) compared with a 25 percent increase ($25,909 to $32,376) over the same period in Weld County.

Differences in average income between the two counties could be related to the greater diversity of industries currently represented in Larimer.

“Sixty percent of the economic activity in Weld is related to agriculture, whereas Larimer County is mostly tied to [Colorado State] University and high-tech industries. The two economies are not all that tied together,” Green said.

Both Green and McAllister speculated that the difference in per-capita income could account for Weld County’s higher foreclosure rates.

“If the per-capita income is higher in Larimer County, its residents would likely have higher cash reserves,” McAllister surmised. “So if they got on hard times or got laid off, they might have more reserves to make their payments.”

But is Weld County falling on hard times?

Building-permit submissions — a positive economic indicator that increases in prime financial climates — strongly suggest the contrary.

Until the mid 1990s, the number of building permits submitted to regional planning offices followed a predictable pattern. They reflected the state of the economy as indicator-watchers would have it: recording lows when foreclosures were high and highs when foreclosures were low. But in the last four years, numbers for both foreclosures and building permits have been climbing.

And in Weld County, the number of building permits has skyrocketed. From 1991 to 1998, Weld building permits grew exponentially from 245 to 2,476, an increase of more than 900 percent.

Weld County’s striking building-permit numbers perhaps provide further evidence that its climbing foreclosure rates are indicative of homebuilders over-extending themselves and too many investors being too lenient in their lending — not necessarily indicative of a slumping economy.

But the possibility remains.

“I’m not a doomsday prophet, but you can’t have this pace forever as far as housing goes, and when it stops, no one knows,” Revitte said.

Regional notices of election and demand — the first indicators of foreclosure proceedings — are on the rise. The number of foreclosures issued to Larimer and Weld county homeowners has steadily climbed in the last four years, from a combined 193 in 1995 to 490 in 1998.

On the surface, these figures signal a potential downswing in the economy. But the underlying numbers may suggest something else: Indicators that historically have been higher in Larimer County than in Weld, such as foreclosures per capita and building permits, are shifting in Weld County’s direction.

“In general, credit problems (such as foreclosures and bankruptcies)…

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