The  U.S. Department of the Treasury and the  Department of Housing and Urban Development  today released January data for the Obama Administration’s Home Affordable Modification Program (HAMP), which showed that a total of 1,797 homeowners in Colorado so far have received permanent loan modifications. Colorado ranked No. 20 in the nation for the number of permanent loan modifications, which the government hopes will keep homeowners out of foreclosure.

Huge percentage jump

The January figures marks almost  a 68 percent jump from the 1,072 permanent loan modifications that had been made in Colorado by  the end of December.On a national basis, 116,297 permanent loan modifications have made made, nearly doubling the December tally, according to the government. In total, almost 1.3 million offers have been made for trial plan offers, which are required before the loans can be made permanent. In Colorado, there have been 11,708 trial modifications.

Earlier, when I blogged that there had been 1,072 loan made through December, Shannon Peer, the director of counseling at the non-profit Brothers Redevelopment in Edgewater, predicted that the numbers would grow quickly, as servicers and lenders geared up to better handle the large number of homeowners with distressed properties that are seeking help. Servicers typically collect the monthly interest and principal payments on mortgages, but in most cases are not the investors in the mortgage securities.

The exponential increase in people being helped likely will continue, he said.

Counselor saw it coming

“This is what I anticipated happening,” Peer said. “The numbers should continue to grow. It will help. The numbers are moving in the right direction.”

He said he recently met with Bank of America officials, and they are “putting in place steps,” to have servicers send documents using computers, rather than faxes, which should largely mitigate the lost documents that so often delay the process. A frequent complaint of homeowners is that loan packaged and documents they send to their lenders are lost, delaying and sometimes scuttling, any hope of locking in a low mortgage rate and longer amortization terms that would allow them to keep their homes.

But the numbers are still too low in Colorado to make a real dent in the foreclosure crisis, said Byron Koste, director of the Colorado Real Estate Center at the University of Colorado Boulder.

Numbers still too low

“It’s easy to have high percentage increases when you start with low numbers,” Koste said. “You have to be careful not to mislead people. I am glad that the number of people being helped is going up, but it is still not nearly enough.”

Koste noted that Kiernan Conway, of the Federal Reserve Board in Atlanta, who will be the keynote speaker at a Colorado Real Estate Center-sponsored conference in downtown on March 2, noted that at least 10 percent of the troubled loans must be modified to make a difference. In a recent speech, Conway pointed out that despite loan modifications, the number of foreclosures continue to rise.

Koste said probably around 1 percent of the troubled loans in Colorado and across the nation have been modified.

“Nationally, if instead of 100,000 we had 700,000, it would start to do some real good,” Koste said. “But what we really need is 20 percent or 30 percent of the loans being modified. If we could do 20 percent a year, we could work our way out in five years. But that’s not going to happen. Loan modifications are not the answer.”

Banks lack incentives

For one thing, banks have disincentives, but few incentives, to modify loans. Koste noted that in 1933 Congress adopted the Home Owners’ Loan Act, which awarded $770 million to the thrift industry to help deal with borrowers who could not repay their loans. He said that worked much better than many people anticipated. It wasn’t until the de-regulation of the thrift regulation in the 1980s, which led to irresponsible lending by savings and loans, that led to demise of much of the once mighty S&L industry. Colorado was one of the hardest states hit by the S&L debacle, as it included the former Silverado Savings and Loan, which ended up costing taxpayers more than $1 billion.

“I don’t know if something like that is the answer, but I do know that we can’t just keep putting Band-Aides on the problem – it’s too deep for that,” Koste said.

He said that creating more high-paying jobs will help a great deal, but he said higher interest rates also are needed.

“I know it is heresy to say that,” Koste said. “You and I like low interest rates. But that is not the solution.” Indeed, unrealistically low mortgage rates were  a large part of the problem that created the housing bubble that created the first nationwide housing collapse in the U.S. since the Great Depression, he said.

Risk-reward ratio out of whack

“Basically, we had unreasonably low interest rates, where people were being promised unreasonably high returns, based on what we thought was the underlying value of the asset,” Koste said. “That is just not sustainable.”

But he said the cost of the money has to correlate with the expected return.

“We made it very easy for everyone to get a loan to buy a house, which we thought just would keep appreciating,” Koste said. “But what we teach here and what we know to be true, is that the cost of the money needs to reflect the cost of the expected return. If you want basically zero-percent money, go live in Japan. They’ve had money at basically zero now,” and has one of the worst economies, as measured by investment returns, in the world.

Levine: More questions than answers

Mark Lee Levine, director of the Burns School of Real Estate and Construction Management, Daniels College of Business, University of Denver, said there are many unanswered questions.

“It’s not enough to just know the statistics as far as the number of workouts, but what do they mean by loan modifcations? Are they reducing the principal in addition to the interest rate? Are they demanding more collateral? The number of years of amortization? What is the size of the loans being modified?”

Also, Levine said that he hopes banks are doing their due diligence to make sure the homeowners receiving modifications will not lose their homes even after they get better terms

“In broad terms, people tend to face foreclosure either because they have lost their jobs and do no longer have the required income, or some outside event, such as a large medical expense occurred,” Levine said. “If a person doesn’t have a job that pays enough to cover even the lower mortgage, why bother spend all the time and effort modifying it, if the home is likely to go into foreclosure anyway. But there may be some people whose spouse still works or their job prospect brightens, or they no longer have the expense of a one-time occurrence, who can be helped.”

In any case, something needs to be done, both for homeowners and on the commercial real estate side, he said. “I just came back from a think tank discussion on that topic,” Levine said. “If something isn’t available, a lot of commercial real estate owners are just going to mail their keys back to the lenders and say, “Now it’s your problem.” The same is true for homeowners.”

Still, overall, the government is pleased with the growth of HAMP.

“With nearly one million homeowners paying less each month and the number of permanent modifications steadily rising, HAMP is doing the job it was designed to do,” said Phyllis Caldwell, Chief of Treasury’s Homeownership Preservation Office, said in a statement.”Struggling families are receiving payment relief and the housing market is showing signs of stabilization.”

Mortgage modifications are one piece of the Obama Administration’s broader housing market stabilization plan. Other efforts include support for lower mortgage rates and access to credit, state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, and support for mortgage refinancing. One year since President Obama announced the Homeownership Affordability and Stability Plan, more than 4 million homeowners have refinanced their mortgages to more affordable levels, interest rates are at record lows, home prices and home sales are rising again and the economy is growing, the government said.

Obama Administration remains hopeful

“As the number of permanent modifications grows, HUD will continue to work with our Administration partners and utilize our broad network of housing counseling agencies to increase those numbers still further,  said William Apgar, HUD’s senior advisor for mortgage finance.

HAMP is the most ambitious government program of its kind – reaching far more homeowners than any previous program has ever attempted. Less than a year after its launch, the program is providing significant relief to struggling families, according to the govenment.More than 940,000 homeowners currently have reduced monthly mortgage payments with a median savings of more than $500. That is an aggregate savings of more than $2.2 billion.

With nearly 1.3 million trial modifications offered already, the program is on pace to meet its overall program goal of providing 3 to 4million homeowners the opportunity to stay in their homes, according to government projections.

John Rebchook can be reached at JRCHOOK@gmail.com or 303-945-6865.

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Later, experts said that without the Colorado Foreclosure Hotline, 1-877-601-HOPE, which has received more than 60,000 phone calls, has played a big role in stemming the tide of people losing their homes.

“We’re making good progress,” said Ryan McMaken, who released the report that showed a record 46,394 foreclosure filings last year, an 18 percent increase  from 2008, but only 20,437 foreclosure sales – a 4 percent drop from 2008.

“I think we are doing very well, especially in light of the 2009 foreclosure filings setting a record, but we still had fewer foreclosures being completed,” McMaken said.

Last year, a new state law required people who were facing to receive information about the foreclosure hotline. McMaken noted that there were about 19,000 foreclosure filings in the five-month period when the law was in effect last year, and the hotline received about 18,000 calls during that period.

He noted that some people would have called more than once and not everyone who called the hotline during that time period was just beginning the process. Still, it indicates that people are taking advantage of the free hotline, which is staffed by HUD-approved counselors.

“We know that 16,000 people who called the hotline have reached a resolution,” McMaken said. “If you added another 16,000 people to foreclosure sales, it would had a huge increase.”

Shannon Peer, who heads counseling for the non-profit Brothers Redevelopment, which manages the hotline, said without a doubt it is the single factor that made the biggest dent in the outcome of foreclosure, although he cautioned the state is still dealing with a “foreclosure crisis.”

And it typically takes a great deal of patience and persistence on the part of the homeowners, whether they are trying to get a permanent loan modification, a short sale, or something else.

“This is something that can take many months to resolve,” Peer said. “It is not something that is going to change in a month. It’s a long process. In some ways, it is hard even to compare one six month period to another, because it can take so many months to work its way through the system.”

Statewide, the former hotbeds of foreclosure sales – Denver and Adams County – have shown dramatic drops in foreclosure sales by public trustee offices, noted McMaken.

The growth is primarily occurring in “mid-sized” markets on the Western Slope and eastern plains, which is the past weren’t the victims of rising foreclosures, he said. In some cases, such as around Grand Junction, the problem is because of a job cuts in the formerly growing and lucrative oil and gas industries, he said. In other places, such as Teller and Park counties, people owned homes based on the “drive to buy” principle, can no longer have the income to pay their mortgages, because they either lost their jobs or are grossly under-employed.

In addition, resort communities in places such as Eagle and Summit counties, are reporting rising foreclosures. McMaken said that figures indicate that many of those are second homes and maybe a third of them are some form of timeshare units.

Ron Woodcock, a broker with RE/MAX Southeast, said the overall Denver single-family housing market is the strongest he has seen since moving here from Florida 3-1/2 years ago. He said some counties in Florida had 30,000 foreclosure filings last year.

“We’re really bucking the national trend,” Woodcock said. “We’re nothing like California, Florida,  Nevada or Arizona.”

Woodcock, however, disagrees with some people who say that if mortgage loans were once again assumable, that would help the foreclosure crisis. “Currently, mortgage rates are lower now than they were two or three years ago,” he said. “Why would you assume a loan of 5.5 percent, when you can get a 4 percent loan today? It might help going forward, but it is not going to help today. And while it is harder to qualify for a loan, really what has happened is that we have returned to what it used to take to qualify for a loan.”

McMaken, of the housing division, said the first wave of foreclosures was due to bad ARMs, interest-only loans, and subprime mortgages. Rising unemployment and falling incomes are responsible for most of today’s foreclosures, he said.

Woodcock said some lenders now would rather work with borrowers on loan modifications, rather than short sales, in which the bank accepts less than the mortgage amount. Still there have only been 1,072 permanent loan modifications in Colorado through 2009. (For more on loan modifications, please go to this blog.)

But Woodcock said that he does worry about the so-called “shadow market.” The shadow market is an unknown number of homes held by the banks, which are not actively being marketed. Nationally, the banks may be holding as many as 7 million properties in this fashion, Woodock said.

“An influx of a lot of those homes would have a negative effect on the market,” Woodcock said. “On the other hand, a lot of investors groups are raising money to buy big portfolios from lenders. They’ll step in and buy 50, 60 or 100 homes at one time. Those type of deals aren’t reported in the MLS, but that type of activity is going on.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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“That is the proverbial drop in the ocean,” said Byron Koste, director of the Colorado Real Estate Center at the University of Colorado in Boulder. “That will have no impact at all. The only impact it has is that 1,000 families are better off.”

The latest report from the  federal government shows that as of the end of December, there were 11,170 homeowners in “active trials,”  for loan modifications. The trial modifications are required before the loan can be made permanent. Colorado ranked No. 19 in the nation for the number of active trials and permanent loan modifications. The 1,072 permanent loan modifications represents 8.8 percent of the trials, which is slightly better than the 8.4 percent ratio nationally. Nationwide, at the end of December there were 787,221 trial modifications and 66,465 permanent modifications. The goal of the program is to provide 3 to 4 million homeowners with lower mortgage payments through 2012.

Banks have no incentives to modify loans

Koste said he is surprised that there were even 1,072 permanent loan modifications in the state. Even though a focal point of the Obama Administration’s year-old $75 billion war on foreclosure is modifying loans to keep people in their homes, banks have no incentive to play along, Koste said.

“There is no bank in a hurry to write down a loan,” Koste said.

For example, if a bank writes down a loan so the borrower saves $700 a month for two years, the bank needs to write off $16,800 – 24 times $700. Arguably, the bank is not taking a loss – it’s just making less interest on the loan.

It actually typically hurts a bank less to let the home go into foreclosure, and become what is known as a REO, or Real-Estate Owned, Koste said. “Banks have a formula where a certain percentage of their loans can be REOs,” Koste said. “But write-downs go straight to earnings.”

Even though bank foreclosure are expensive, most banks would rather put off the cost to the future, than take an immediate hit to the bottom line, he said.

Koste said banks need incentives to make loan modifications.

“We need to spread the pain, and spread the gain,” Koste said. “The pain is to the banks, and the gain is to the homeowner. There’s a disconnect. Things are misaligned. It’s a mess.”

He said everywhere he goes, he hears horror stories from homeowners who try to work with banks to modify their loans.

“Extend and pretend is alive and well,” Koste said. “When people talk to their banks, their conversations just  seem to disappear into the ether. Sometimes, months later, someone will respond. Everyone is dragging their feet. For the people who process the loans payments, this is new to them and they are not even sure what the rules are. They don’t know what their bosses, the people who actually invested in the loan, will or will not accept or what they can offer.” Another complication can be in the loan had been folded into a financial instrument such as a mortgage-backed security. Modifying individual loans in the security can reduce the monthly cash stream to investors.

Modification activity poised to rise

But a surge in permanent loan modifications may be coming in the next few months, said Shannon Peer, director of Housing Counseling at the non-profit Brothers Redevelopment Inc. in Edgewater.

“The big wave of temporary modifications did not start until June, July and August of last year,” Peer said. “What I have heard from several loan servicers is the end of three-month trial periods they were not ready to provide permanent loan modifications, because of the sheer volume.”

He said a lot of modifications were only made permanent last December and January.

“I expect more permanent loan modifications will be offered,” Peer said. “It will be interesting to see what happens over the next couple of months.”

He said some of the frustrations with distressed borrowers is that the loan servicer requires them to fax the same information more than once. And some homeowners mistakenly think that loan servicers will call them to remind them of what documents they need to provide at a future date. But he said they should not expect any follow-up calls and should be responsible for providing all the necessary information by deadlines.

“Because these companies are such large entities, something we have noticed is a communications break down between the borrower and the servicer,” Peer said.  ”One of the things our counselors are educating the homeowner about is regarding providing all the necessary documents. We don’t want our homeowner clients to be denied because they did not provide the proper documentation at time. Our counselors, at the first meeting, tell the homeowners to bring documentation – including pay stubs and bank statements – which helps. It does take a lot of persistence on the part of the homeowner.

Modification a lifeline for one homeowner

Michael Gunstanson was extremely persistent with his lender, and his hard work and determination paid off. He was one of the lucky ones who received a permanent loan modification.

“It was a godsend,” said Gunstanson.

His new permanent loan from JP Morgan Chase dropped his interest rate to 2.25 percent from 5.75 percent. That cut his monthly payment to about $950 from about $1,700.  In the sixth year of the loan, which will be amortized over 40 years, the rate will rise to 4.5 percent, where it will stay for the next 34 years, unless he pays it off sooner. He also will need to make a $30,000 lump sum payment when he pays off the loan.

The monthly savings is more than $600 payment on their 2005 Dodge Durango.

“So for us, it’s like losing a second car payment,” said Gunstanson. “Not only can we afford to stay in our home now, but if I get a high-paying job out of state, we could rent our home.” He said homes in his Lakewood neighborhood are renting between $1,400 and $1,600 a month.

The loan modification sounds like a good one, both for the homeowner and the lender, said Jeff Bernard, principal of Bernard Real Estate Analytics.

“A real key point is that now he can rent it,” Bernard said. “Whether he rents it or owns it, he will still retain significant cash deductions.”

Bernard said it sounds like the lender will recoup much of the money it lent at the back-end of the loan. And it may very well take all of the appreciation, when the home is finally sold, with the $30,000 payment, he said.

Indeed, one of the concerns for banks, the Obama Administration, and society, is the number of people who have had their loan modified, and still do not make payments based on the lower amounts. “I seem to recall one estimate was that 42 percent of the people who had their loans modified, still didn’t make their payments,” Bernard said. In some cases, it was because the payments were still not low enough, and other types it was because the home was so under water – that is, the mortgage is worth more than the home – they believed doesn’t make economic sense to throw good money after bad. Bernard said some people may even try to buy another home at today’s discounted prices, and let their current home go back to the lender. He said in many of those cases, the homes are expensive and are held in one spouse’s name.

“There is a lot of game-ship going on right now, and I think some homeowners are looking for ways to game the system,” which they think has treated them unfairly, Bernard said. He said some people feel like they are throwing their money away for at least the next five years, by continuing to make mortgage payments on their homes, so they choose to walk away, even if they can afford the payments.

“I do think loan modifications can be a great thing for a certain portion of the population,” Bernard said. “But what I think what we have learned is that for a certain portion of the population, they just should not own a house. A few years ago, we believed it was the American Dream and everyone should own their own home. But I think a large percentage of the population is better off renting.”

Another homeowner considers “strategic default”

One homeowner who lost a well-paying job about a year ago, is seriously thinking about renting a two-bedroom apartment for $600 a month, and returning his home just south of Washington Park on two lots to his lender in a “strategic default.” His home is underwater – that is, his mortgage his worth far more than his home.

He currently is working two jobs for about $3,550 a month, and his interest-only mortgage payment on his $384,000 loan is about $2,130.

“Obviously, the math does not add up,” said the homeowner, who asked that his name not be used.  Efforts to modify the loan with the lender have been fruitless, and just last Friday he talked to a counselor for the Obama administration’s Hope for Homeowners program, who was not optimistic he would be able to get his loan modified.

A few years ago, he could have sold his home for $500,000 to an infill developer that would have scraped his bungalow. He said he has had one nibble from a developer that indicated he might be willing to shell out $389,000, but the prospects do not look good because of the glut of expensive homes on the market.

He said his lender, U.S. Bank, said it might consider a short sale, in which it accepts less than the mortgage amount, but it would expect him to pay the difference.

“Uh, hello… If I’m going to screw my credit, I figured I might as well just walk away owing the whole amount and paying nothing,” he said. “But, to be honest with you, if the developer doesn’t come through, I really think my best option is a “strategic default.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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Although the foreclosures last year were the second highest on record – topped only by the 27,122 filings in 2007 in the seven-county area – there were signs of encouragement, as well as a sea change in where the foreclosure activity is gaining speed.

Denver County, for example, which a few years ago was ground-zero for foreclosure activity, showed a slight increase in filings in 2009 from 2008. Foreclosures also fell in 2008 from 2007 in Denver County, when it peaked with 8,240 for filings. Denver was the only county to show a decrease in foreclosures in the fourth quarter from the same period in 2008.

Adams County, with many lower-priced homes, also has been at center-stage for foreclosure activity in recent years, but filing activity was flat in 2009 from 2008, as well as the fourth-quarter of 2009 compared with the last three months of 2008. Overall, foreclosure filings in the fourth quarter from the same period in 2008 were up 32 percent. Some observers  are predicting that another wave of foreclosures could sweep over the Denver area next year.

“Our foreclosure sales are actually down about 20 percent from 2008, and the number of foreclosures being withdrawn are up 17 percent,” said Carol Snyder,  public trustee for Adams County.

“That means more people are staying in their homes and not losing them in foreclosures,” Snyder said. “I think that is a more important than the number of filings.”

She said banks appear much more willing to work with homeowners than they have been in the past.

“I think the banks are learning that it is better to modify loans and keep people in their houses than to add more real estate foreclosures to their portfolios,” Snyder said.

Shannon Peer, director of Housing Counseling, agreed, but is still worried that the state may face more foreclosure filings, which could swamp the state and the system.

He said that the Colorado Foreclosure Hotline (877-601-4673), which Brothers manages, has helped a lot of people learn their options, helping to keep many people out of foreclosure and in their homes.

“But there are indications that a second wave of foreclosure filings building,” Peer said, because of the economy. In addition, another round of  option-ARMs are set to adjust upward in the second half of the year, which could be a calamity for homeowners barley hanging on with their current payments, he said.

He said a “second or third-wave of foreclosure filings,” could offset the drop in foreclosure sales, as well as drop the increase in foreclosure cures and withdrawals.

Meanwhile,  Boulder, Broomfield and Douglas counties have experienced the largest percentage increases in foreclosures, although their overall numbers are still smaller than in Denver, Adams and Arapahoe counties.

“This is the highest number we have ever done. Ever,” said Dianne Bailey, public trustee for Douglas County, where the 2,765 filings in 2009 were almost 27 percent higher than in 2008. Boulder foreclosures rose by more than 38 percent, the biggest increase of the seven area counties.

Bailey was surprised in the surge of foreclosures filings.

“I thought they were going to level off after 2008,” she said. “I guess we thought they just couldn’t go any higher.”

More expensive homes entering the foreclosure process is a trend that counselors saw emerge last year, said  Peer, of  Brothers Redevelopment in Edgewater.

“Over the last year, we have been seeing more homeowners who had higher incomes that we had seen previously,” Peer said. “We’re seeing more home values above $250,000 we had seen in the past. In the past, the under $200,000 price range had been the hard-hit market.  We have seen homes in Evergreen in the $800,000 and $900,000 range, we have seen homes down south in the $600,000 to $650,000 price range. I would say this is a trend that started a good eight months ago. ”

He said it was possible that owners of expensive homes were able to hold out longer than people at the lower-wrung of the economy, but now they, too, are losing their jobs.

One of the challenges they face is that because much of the jumbo-loan money has dried up, it is difficult to find buyers for homes that have mortgages larger than conventional limits of $417,000.

“They are being pinched,” Peer said. “Their are very buyers out there unless they can pay cash. And there aren’t many cash buyers.”

Bobby Burnett, principal of Keller Williams Realty DTC, said that while his regular home sales business was way down last year, his short-sale business was up 50 percent to 60 percent from 2008. A short sale is when a lender takes less than the mortgage amount.

Although the prices were “all across the board,” the biggest increase of distressed properties was for ultra-expensive homes.

“We saw them in Parker, Castle Rocky, a bunch in Boulder,” Burnett said. “The only place that seemed semi-insulated  was Castle Pines Village. I find properties are still selling there.”

Many of the expensive homes are selling for huge discounts, he said.

He tried to sell one home west of Sedalia for $1.1 million, which previously had sold for $1.4 million. Later, the home went into foreclosure and another broker sold it for $750,000.

Perhaps one of the biggest bargains is a 9,000-square-foot home on 11 acres in Elbert County that was appraised at $3 million three years ago.  It’s likely now to sell in a short sale for about $800,000, he said.

“The house looks like a southern mansion in Atlanta,” Burnett said.

Denver City Councilman Rick Garcia, who a couple of years created a Foreclosure Task Force, said that he is not surprised that foreclosure activity is rising faster in the suburbs than in the city.

“As I recall a couple of years ago from data from the Foreclosure Task Force, the average price of a home in foreclosure in Denver was around $124,000, far below the median-price of a home in the city,” Garcia said.

Many of those homes, he said, have been purchased with the help of federal funds or have been “gobbled up” by private investors. They have since been “rehabilitated” and put back into the market, he said.

The first round of foreclosures came from “unscrupulous lenders,” who saddled buyers with high-mortgage rates, Garcia said. Many of those homes in Denver have since worked their way through the system, Garcia said.

He said he thinks many more of those kind of loan, as well as no downpayment loans that were not supported by incomes, were made in suburban subdivisions.

“Denver seems to be bottoming out of the foreclosure circumstances,” Garcia said. “Now, I would say we are seeing more of what I would call “traditional” foreclosures, caused by people losing their jobs.”

Ryan McMaken, spokesman for the Colorado Division of Housing, said that the Denver-area data seems to confirm that more expensive homes in suburban areas are now suffering from growing foreclosures.

“Overall, what I would say is that the Denver-area is fairly flat, while foreclosures are rising elsewhere in Colorado,” McMaken said.

Later this months, McMaken will release a report that will show a record number of foreclosure filings in the state. In 2008, there were just under 40,000 foreclosure filings in all of Colorado, but his data will show more than 45,000 filings in 2009.

There are still a few counties to report to the division, but he expects about 47,000 filings when he receives all of the data. “I’m already at something like 45,400,” he said.

He noted that when the foreclosure crisis began several years ago, “the Denver-area was driving it,” and much of the area outside of the metro area remained impervious.

That is no longer true, as more populous areas along the eastern plains, as well as a number of Western slope communities, are seeing huge percentage increases in foreclosures.

“Of course, there are other economic factors driving the foreclosures in a lot of mid-sized counties outside of the Denver metro area,” he said. For example, a downturn in mining and exploration is hurting the Grand Junction area, while the failure of Greeley-based New Frontier Bank hurt ranchers and farmer.

Sources: Public Trustees

*Adams County removed “repeat” filings, which reduced the total amount by about 100 each year.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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Nationally, about 650,000 people have been given trial loan modifications, as part of the administrations’ $75 billion foreclosure-prevention plan, but few of those have been converted into the permanent loan reductions.

“I do not think Colorado is driving this debate – it is being driven by bigger states with even bigger problems with this issue,” said Ryan McMaken, spokesman for the Colorado Division of Housing.

“But the reality is that it would have to help thousands of people in Colorado,” McMaken added. He noted about 12,000 new foreclosure filings in the third quarter state-wide, and “at any given time, there are probably in the neighborhood of at least 15,000 people in the process.”

Still, it is hard to get an estimate on a more precise number.

“I have no idea,” said Shannon Peer, director of housing counseling at the non-profit Brothers Redevelopment in Edgewater.

Peer said he is in favor of anything that allows people to keep their homes, “as long as it is a long-term fix, and not a short-term fix.”

He noted that the “original plan was to get homeowners approved so if they could make three payments at the lower interest rate, they would then do the modification on a permanent basis,” Peer said. “There has just been some problems getting those temporaries into permanents.  Getting people into the temporary loan modifications took longer than we would have liked to see, and now getting them into the permanent loans is taking longer than we would like.”

If Michael Gunstanson and his wife, Dru, can get a permanent loan modification, they could see their monthly loan payment on their Lakewood home drop almost 44 percent to $950 from $1,690. They have been making monthly payments of $1,090 under the trial program, but J.P. Morgan Chase has not yet converted it to a permanent reduction. And the permanent program would carry an initial rate even lower than what they were paying under the temporary program.

“We’re kind of between a rock and a hard place,” said Gunstanson, an out-of-work journalist, who picks up the  freelance work whenever he can.

He said he is dealing with both “loan modification people and foreclosure people,” at  Chase, and he’s not sure the two sides talk to each other.  He’s already had to re-submit all of his documentation, such as two years of W-2 forms, because the lender can’t find the original documents, he said.

“Because we were 90 days past due, they put us on this modification program, which is supposed to stop the foreclosure,” he said. The loan modification side wants him to stop making payments until February, while he worries if he does that, the other side of the bank may foreclose.

But he supports the efforts to speed the process, which could include fines for loan servicers that do not make enough permanent modifications quickly.

“It would do two things for me,” he said. “First, it would make it easier for me to afford the monthly payments while I look for work here and until the economy improves. Second, if I’m able to find a job in Florida, for example, it would allow me to rent my house out and not lose it.”

Still, it is questionable if people with no jobs will be helped by loan modifications, said McMaken of the housing division.

The first round of foreclosures were caused by bad loans, but the current wave of distressed homeowners is being driven by people losing their jobs, he siad.

McMaken said he has seen statistics that the “recidivism rate” – the number of people who get their loans modified, but still end up in foreclosure – is extremely high.

“In some cases it is 50 percent or higher,” he said. “That is seldom discussed, but it is important to watch. If you don’t have a job a loan modification might not be for you.”

Both he and Peer strongly urge anyone fearing or facing foreclosure, should speak with a HUD-approved housing counselor for advice on whether a loan modification will help.

“Counselors have worked on hundreds and hundreds of cases,” McMaken said. “And when you first received your loan, the lender did all the work for you. They just said, “Skim this and initial here.” Now, everything is in the homeoner’s lap and it is complicated.”

McMaken said lenders and loan servicers complain that homeowners don’t fill out the forms properly, which does not allow them to process the modifications. A counselor can help people make sure they cross their t’s and dot their i’s.

Along the same lines, Peer noted that there are often “communication breakdowns between the borrowers and the loan servicers. A counselor can step between them and straighten out the issues.”

Homeowners seeking free advice from a counselor can call the Colorado Foreclosure Hotline at 1-877-601-HOPE.  For more on the loan modification drive, go to this link.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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And while the number of foreclosure closings – those that have completed the entire process and have been sold by public trustees – is down 7.9 percent from a year earlier, the rise in filings concerns experts that another wave of foreclosures could hit next year.

“New foreclosure filings are at a peak again,” said Ryan McMaken, spokesman for the Colorado Division of Housing, which released the report.

“That question is, what does this mean for the future? All of these filings…at some point might continue down the foreclosure path all the way to auctions,” held by public trustees, he continued.

He noted that the number of foreclosure sales “are muted now,” but that may not be a trend that is sustainable.

Ron Woodcock, a broker with RE/MAX Southeast, and an expert on short sales, said that recently banks have been faster and better at accepting approvals for the transactions, in which they agree to accept less than the full amount of the mortgage at the sale.

But he advises all of his clients to try to modify their loans before they entertain the notion of a short sale. Lenders will look at lowering interest rates, sometimes extending the lenght of the mortgage to as much as 40 years, which lowers monthly payments. Sometimes they’ll even lower the principal amount.

He said many lenders have beefed up their loan-mitigation departments to deal with increased demand.

“My personal experience is that is not as much of an ordeal as early this year,” Woodcock said. “It was bad. But this may be short-lived. I’m expecting we may be right back where we were earlier this year at the beginning of next year,” because of the influx of new foreclosure filings.

Shannon Peer, of the non-profit Brothers Redevelopment in Edgewater, said that what he is hearing from people who are in danger of losing their homes, that lenders are becoming more aggressive in helping distressed homeowners with loan modifications on a trial basis, but are not as quick as making them permanent.

“If you go back to June, when there were all these stories about no trial modifications in effect, and the banks were just in the process of implementing them and getting them ramped up,” he said. “Now, they have the manpower and the technical ability to do it, but they are not going from the trial programs to the permanent loan modifications as fast as we would like.”

And Stephanie Riggi, manager of the Colorado Foreclosure Hotline’s call center, said that calls to the hotline have increased about 40 percent from where they were a year earlier.  She said that four out of five people who complete counseling with their HUD-approved counselors, avoid foreclosures. She also is seeing a surge in people calling who are current on their mortgage payments, but want to take preventative measures to keep their homes.

“I think people are much more sophisticated and aware of programs available to them than they were in the past,” Riggi said.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865

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“I think it is a positive thing for our market currently here in Denver,” Peer said. “We have such low inventories and prices are still very low as well. So being where we are in the market, this is a good incentive,” he said about the legislation signed by Obama.

But Peer is not a Realtor.

As the Housing Counseling Manager for Edgewater-based Brothers Redevelopment, which has helped thousands of homeowners in Colorado avoid or deal with foreclosure, he has another take on the tax credits.

“My concern is that the credits might cause some people to rush into homeownership,” Peer said. “We have been trying to promote education along with the incentives. We have some fears, that especially first-home buyers that are buying only for the tax credits, who might not buy otherwise, might run into problems down the line.”

Indeed, he said if someone can only afford to buy a home with the help of the tax credits, they might not be a good candidate to buy a home at this time.

I asked Peer if the tax credits could actually result in more people eventually losing their homes to foreclosure.

“That’s hard to say if that is true or not,” Peer said.  “Over the past couple of years, with prices have dropped, and so many people have been on the fence. A number of people have worried that they might be buying too early and prices could fall more.”

The tax credits, however, could help bring stability to the market with more buyers, and especially in the Denver area, could help reinforce that the housing market is coming off the bottom, Peer and Realtors say.

“My feeling now is that we’re getting out 0ur promotion of homeownership, which is good, but we do not want people to jump in who are not ready to be homeowners, just because of the tax credits,” he said.

“I wonder if we missed an opportunity to require some kind of counseling before people can take advantage of the tax credits,” Peer said, much like the Colorado Housing and Finance Authority does, when buyers take advantage of its programs. Also, Fannie Mae and Freddie Mac have an educational component with some of its programs, he said.

“Of course, I was not involved in that decision,” Peer said. “Maybe the experts consulted thought that would uave made the program too cumbersome and unwieldy.”

Still, he encouraged people to contact Brothers at this link or call 303-202-6340. You don’t need to be in danger of losing your home to contact the non-profit Brothers, which will put you in touch the the appropriate HUD-approve counselor for no charge.

“We have counselors who can give advice to first-time home buyers and existing home owners,” Peer said. “I’m sure there are people out there who have owned a home for 10 years, but since they haven’t purchased a home in 10 years, buying a home is really new again to them. We have a wide-array of counselors available.”

He said they have even discussed setting up a number similar to Colorado Foreclosure Hotline, for people seeking advice on how to avoid financial problems when buying a home.

I asked him if what they are doing is similar to preventive medicine, as opposed to treating the sickness.

“Definitely,” he said.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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