This story was originally published in The Denver Post on June 18, 2006.
Margie Ibarra worried about paying $160,500 for half a duplex. She knew she was buying it with no money down and a pair of home loans, one carrying a double-digit interest rate.
But she dreamed of spending her life on a peaceful street at the edge of Brighton – and of owning 710 Mockingbird Lane free and clear when she retired.
Instead, two years after she moved in, she lost the first home she ever bought to a foreclosure.
“I took the keys with me. I made sure the door was locked and the windows were shut. I cried when I was leaving. I loved my little townhouse,” she said.
These are troubled times on Mockingbird Lane.
In a two-block loop of Mockingbird Lane and Mockingbird Street – a neighborhood built just seven years ago – there have been 23 foreclosures among 94 homes in five years. That’s nearly one of every four front doors. One home has been foreclosed three times, two others twice.
The house-building boom and loose lending practices that ended disastrously for so many people here mirror a pattern stretching across Adams County, which has the worst foreclosure rate in a state with the worst foreclosure rate in the nation.
In April, Colorado had one of every 494 households in some stage of foreclosure, according to RealtyTrac. That’s the highest rate in the nation, where the average was one of every 1,268 households.
The last big foreclosure spike in Colorado came during economic crises: the 1980s oil bust and savings- and-loan collapse.
The problem now, experts say, is that too many working-class families take on crippling debt loads to seize their piece of the American dream. They overpay for starter homes. They take on extreme mortgage rates to avoid making a down payment with money they don’t have.
“If you have a job and breath in your body, a builder will put you into a new home,” said Jan Buckner, who invests in foreclosure properties in Colorado.
They wind up in a trap from which there is only one escape: losing their home.
The mortgage trap
Mockingbird Lane curls beside a floodplain on the eastern bank of the South Platte River, land Brighton initially zoned for manufactured housing. Then a national builder, KB Home, showed up with a grander vision in the late 1990s: a community of 556 affordable homes along streets named for songbirds and waterfowl.
On Mockingbird Lane, many who moved into homes designed for first-time buyers put little or no money down. KB offered easy financing. So did other lenders.
Some homeowners refinanced quickly. Many accepted adjustable-rate loans that could run as high as 16 percent when conventional 30-year mortgages were below 6 percent.
It is common practice for lenders who originate a mortgage to resell it to other investors. In almost every case, the lenders who foreclosed on the Brighton homes did not originate the mortgage.
Colorado homebuyers have flocked to high-risk loans, which could trigger more foreclosures if interest rates rise. Last year, Colorado had the highest dependence on interest-only and adjustable-rate mortgages of any state. The higher-risk loans accounted for 43.6 percent of all mortgages, compared with 26.7 percent nationally, according to LoanPerformance, a California firm that tracks mortgage risk.
Jim Spray, a Colorado mortgage broker who battled predatory lending practices, and his wife, Linda, a Realtor, reviewed foreclosures on Mockingbird Lane and Street at the request of The Denver Post.
They say they saw minimal down payments, and also refinancing loans, that left homeowners owing more than their homes were worth.
At foreclosure, some buyers owed $20,000 to $30,000 more than their original purchase price. “That’s a killer,” Linda Spray said.
Gov. Bill Owens this month signed a law that will require mortgage brokers to submit to criminal background checks, post a $25,000 surety bond and register with the state as of Jan. 1. Previously, Colorado was one of only two states – Alaska being the other – that did not regulate mortgage brokers.
Jim Spray hopes the new law will help.
But he worries what will happen when existing loans, especially “these 80-20s with no money down,” kick into their adjustable- rate phases.
“We could well see another spike in foreclosures,” he said. “It’s nowhere near over.”
A tragedy in every file
Margie Ibarra was an unmarried hospital worker in her 40s when she found her dream home on Mockingbird Lane.
Conventional-mortgage providers once demanded a 20 percent down payment or mortgage insurance to protect the loan in case of default. Those days are long gone.
Ibarra was among those who started out with a newer, and riskier, 80-20 loan. First Franklin Financial Corp. provided her a first mortgage covering 80 percent of the purchase. Another lender supplied the remaining 20 percent in a second mortgage.
That enabled her to buy a $160,500 house without a down payment in 2002.
Her first mortgage started at 6.5 percent interest but could climb to 12.5 percent. Her second mortgage, on the 20 percent balance, came in at 12.75 percent.
Her payments started at $1,148 a month: $811 on the first mortgage and $337 on the second.
“The foreclosure was due to my financing,” she said. “I would have rather had the mortgage company be honest and say, ‘No, this is too steep.’ Why couldn’t they have made me make just one payment at a fixed rate? They make it sound so good.”
First Franklin declined to comment.
“I kept trying to refinance. They would tell me you have to wait, due to the fact that all of the properties in the area had gone down in value,” she said.
A car accident finally sank her hopes. She needed surgery. She borrowed more money to buy a replacement vehicle.
After that, “I couldn’t catch up,” she said. Her home was foreclosed in 2004, less than two years after she bought it. She filed for bankruptcy protection and let it go.
Ibarra has a steady job in patient financial services at Platte Valley Medical Center. She pays her sister $450 a month in rent and is trying to repair her shattered credit. But her dream of retiring in her own home has died.
She said she drove through her old neighborhood the other day, passing the home she loved. It sold for $131,000, nearly $30,000 less than she paid for it.
Around the neighborhood, “so many houses are for sale,” she said.
She knows she will not return.
“I am already 50,” she said. “I will never own a house.”
Throughout Adams County, foreclosures have clustered at the low end of the market, where young couples, working-class wage-earners and people with shaky credit hunt for homes of their own.
In six years, lenders have foreclosed on 59 homes at Welby Hill, a condominium complex near Thornton, and 50 homes at View Point Condominiums in Thornton. On Mockingbird Lane and nearby streets where foreclosures are rampant, the homes are duplexes.
Since 1995, Adams County foreclosures have grown nearly eightfold, reaching a record 3,281 last year. This year the county is on pace to exceed 4,000.
Every one lands on the desk of Jeannie Reeser, the Adams County public trustee, who spends her days signing foreclosure papers.
“I want to be No. 1 in something different,” she said. “There’s a tragedy in every one of these files. I’ve had grown men cry on my shoulders, and there’s nothing I can do.”
Creative financing
When a home is foreclosed, details of the loans become public records.
On Mockingbird Lane and Mockingbird Street, records of 23 foreclosures – all of which were half a duplex – around a two- block loop show Ibarra’s financing terms were not so unusual.
A majority of the home loans came within $3,000 of the purchase price. Some buyers borrowed the entire amount or all but a few hundred dollars. Half the foreclosed loans had adjustable mortgage rates, and some could raise payments within six months or a year after the purchase.
Refinancing left other homeowners with no equity. At the time of foreclosure, six owed more in principal alone than they originally paid for the home. For homeowners in financial trouble, the increasing supply of new homes makes it hard to get out.
The fatal event varies from home to home.
“I ended up getting a divorce, and I couldn’t afford my house anymore,” said Danielle Williams, who had two boys, a girl and no income after her husband moved out. She lost her home at 785 Mockingbird St. one year after they bought it.
Marilyn Sisti, the first of two homeowners foreclosed at 727 Mockingbird St., said she had a high-interest mortgage loan and lost her job. Her variable interest rate started at 10.4 percent and could have surpassed 16 percent.
Ernesto Rodriguez, who lost the house at 722 Mockingbird Lane, said he simply couldn’t keep up with $1,400-a-month payments. He realized, too late, what a high price he paid: $161,900 for a house auctioned at $130,000 and later sold for $145,000.
Gayle Langan remembers how pretty the neighborhood looked when it was new.
A freshly planted park with a playground, picnic tables and basketball hoops bordered the backyards on Mockingbird Lane. Next to the park, sand and gravel excavators were scooping out a future lake for the homeowners.
KB Home representatives talked of a fishing lake “and a little swim beach,” Langan recalled. They promised to fix any problems she found. They made borrowing easy. The builder had its own mortgage branch.
“So you don’t even have to find a lender,” she said they told her. “We’ll take care of that.”
She bought half a duplex in 2000 for $136,000. She said she put $6,000 down for the home, at 801 Mockingbird St., and borrowed the rest from KB Home’s mortgage arm, which later sold the loan.
From the day she moved in, she said, her brand-new home had problems. Windows leaked. A drain spout laid a sheet of ice on her sidewalk. In her bedroom, she could hear the couple on the other side using the bathroom. They told her they could hear her snore.
“It was like living together,” she said. “I could hear more than I ever wanted to hear.”
Two years after moving in, she refinanced her home for garage and bathroom improvements.
By 2004, she was struggling to keep up with higher mortgage payments, property taxes and homeowner association fees. She was commuting 30 miles a day to work and was frustrated by all the problems with her new home.
That year, Countrywide Home Loans foreclosed.
“I called the mortgage company and said, ‘You can have it,”‘ she said. “‘It’s yours.”‘
Los Angeles-based KB Home is the nation’s fifth-largest builder and best known for its entry- level subdivisions. It built more than 1,300 homes in Colorado last year, according to the company.
Jason Lindaman, a KB Home representative, said the company could not provide details about the number of homes it financed in the subdivision that includes Mockingbird Lane and Mockingbird Street.
KB recently contracted with Countrywide, the nation’s largest mortgage company, to handle its home loans.
Asked about Langan’s complaints, Lindaman said the company does not sacrifice quality for affordability. It provides a 10-year limited warranty on its homes, he said, adding that KB was ranked the top homebuilder in Fortune magazine’s list of America’s most admired companies this year.
“We build in Brighton because of its small-town atmosphere and rich cultural and historic roots,” he said. “We still take great pride in our homes and aim to have complete customer satisfaction in this community.”
A hard time getting out
At a glance, Mockingbird Lane hardly seems a place where numerous families lost their homes. There are tricycles in yards, welcome signs on front doors, flags waving on porches. The promised lake is filling, though a barbed-wire fence and no-trespassing signs still separate it from the homeowners.
Yet in a 7-year-old neighborhood, there are less welcome signs. Dead lawns. Chiquita banana boxes left on the steps of an abandoned home. A no-entry warning on another locked up since December. A month-old auction sign in front of another.
Around the loop from Mockingbird Street to Mockingbird Lane, eight homes are for sale. Six others have been foreclosed in the past year. Renters occupy a growing share of duplexes built for homeowners.
Heather and Brian Lollar have lived here since the neighborhood was built. Ibarra once lived next door.
“It was such a nice neighborhood when we moved in,” Heather Lollar said. “It still is.”
But with three growing boys, she and her husband are trying to leave. They’re nervous about all the foreclosures. They’re asking $160,000 for a meticulously maintained half-duplex with a sprinkler system and custom gazebo.
She quizzed crews brought in to fix up foreclosed homes down the street. How soon are they hitting the market? she asked. Anytime, they told her.
“I came home and said we need to get our house on the market,” she said, “before all these foreclosed homes go up for sale.”
Tom Dory, another resident who may sell, shares their concern.
“It’s not going to be easy to dump,” he said of the home he bought six years ago. “My son’s a real estate agent. He even told me that. These things don’t move very well.”
Computer-assisted reporting editor Jeffrey A. Roberts and library researcher Barbara Hudson contributed to this report.
