Tightening Market Offers Silver Lining in Mortgage Crisis

Despite all the gloomy foreclosure news, it’s an excellent time to buy a house for some, while an impossible time for others – which may also be a sign of improvement.The dreary market conditions surrounding the record number of Colorado foreclosures have pushed some questionable lenders out of the market, made consumers more aware about the risks of taking on a mortgage and made investors more reluctant to back the riskier loans that helped led to the housing crisis, mortgage counselors and lenders say.

Translation: It may be harder to get a mortgage loan these days, but that’s not entirely a bad thing.

“There are a lot of buyers who have some dodgy credit that were getting financed but aren’t now, and I think that’s probably for the best,” said Jay Rabideau, a mortgage counselor at Unifirst Mortgage’s Denver branch.

These buyers are more likely to be turned away than receive loans structured on payments out of their reach.

“It’s really created a lack of funding for people who are outside the box, and the box is good credit and money to put down,” said Nathan Hall, vice president mortgage operations, Colorado State Bank and Trust.

And for those with a little money, or at least good credit, to their names, there are still options in this buyers’ market if they’re willing to do a little shopping around.

Colorado State Bank and Trust is part of a group of agencies participating in the Metro Mortgage Assistance Program, a lending program created and funded by cities throughout the Denver area.

The program offers low-interest loans and down-payment grants to families of one or two who have not owned a home in three years with an annual combined income of less than $71,701. The income cap increases slightly for larger families or for prospective home buyers who want to purchase in a neighborhood with a traditionally low percentage of homeowners.

More than 500 families who met the program’s income and credit requirements have bought homes in the last two years.

In the history of the Metro Mortgage Assistance Program, which was also used in the late 1990s, only nine of the 1,064 mortgages issued through the program went into foreclosure, said Derek Woodbury, spokesman for the Denver Office of Economic Development.

Last year there was one foreclosure filing for every 45 homes in Colorado, according to the state.

Cities across the metro area raise money for the program by issuing private activity bonds.

In 2006 a metro area pool of $25 million in bonds was issued, according to Woodbury. The next year, the program issued $32.5 million in bonds in both the spring and late summer. 

Last July Crystal Blank and her husband moved into their Westminister home after successfully applying to the Mortgage Assistance Program.

“As far as being practical with a loan, I felt like ours was more practical than anything else,” said Blank, who had originally considered getting a more traditional loan with a higher interest rate from a bank.

“What we got than for our money, we ended up a lot happier than most of our friends (who were also buying homes last year,)” Blank added, citing a reasonable interest rate and the additional down payment assistance that allowed her family to purchase a home that they could immediately move into rather than having to repair.

“It actually all fell into place after we got everything situated. It worked out really well,” Blank said.

In addition to a low, 30-year, fixed mortgage rate, borrowers can receive a grant of up to 4 percent of the loan amount to help cover closing costs or go toward a down payment.

“One of the largest barriers to homeownership is a lack of a down payment,” Woodbury said.

Money is still available from the last bond issuance, Woodbury said, because either buyers have been scared off by the staggering number of foreclosures or falling interest rates have enticed them to seek loans elsewhere.

But Denver has plans to issue another $5 million in bonds to fund the next round of the mortgage assistance program.

“We’re kind of waiting in the wings for it, to see where market rates go,” Woodbury said.

Zachary Urban, director of housing counseling for the nonprofit Brothers Redevelopment, Inc., cautions that buyers should always attend a home-purchasing class (even if they have an MBA), shop around between different lending options and consider if purchasing a home is the right move for their family.

“As we walk away from this foreclosure cycle, there’s a culture of fear from those who have gone through this cycle or watched this cycle from the sidelines,” Urban said.

Urban said there is increasing interest in self-education at Brothers’ monthly home-buying classes — so much so, he’s moved the classes from a room that accommodates about 30 prospective buyers to an auditorium that easily seats 65.

Some irresponsible lenders have either been squeezed out of the market or left, looking for the next quick profit, he noted, while housing assistance programs such as the Federal Housing Administration have increased their share in the market. 

“If you’re buying right now and you’re planning on being there for the next 10 years, it’s a great time to buy,” Urban added.

While it’s not a buyer’s market for the 39,915 borrowers who filed for foreclosure in Colorado last year – an increase of 40 percent from 2006, according to the state – there may be a silver lining for some of those still shopping for a home.

“Given some of the tightening (of lending standards) and given some of the contraction of the market, it’s kind of a better time to buy,” Urban said.

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