2007: Wild financial ride, but Colorado Springs stayed in game

2007 was a financial roller coaster -- the sub-prime fallout, recession predictions, foreclosures and some dizzying highs on the stock market were sandwiched between crushing lows.

Colorado Springs has weathered the storms and is holding steady. Here's a look at local and national banking and finance news covered during 2007.

Sub-prime fallout

During the past few years, mortgage brokers and financial service companies have been developing creative and aggressive ways to help prospective homebuyers -- even those with low credit scores -- get their piece of the American Dream.

But as more borrowers are defaulting on subprime loans, or loans made to those with low credit scores, some lenders are filing for bankruptcy and others are tightening their lending standards -- which could have an effect not only on borrowers who don't have great credit scores, but also on those who have good credit, according to some experts.

Subprime loans usually carry a higher interest rate to compensate for the lender's increased risk. Many subprime or near-prime loans were sold as interest only, adjustable rate mortgages, option ARM or negative amortization loans.

Interest-only loans require monthly interest payments only for a certain period of time. Because the principal is not reduced, the balance remains unchanged. With negative amortization loans, payments do not include interest, so the balance of the loan increases by the amount of the unpaid interest.

ARMs have an interest rate linked to an economic index, so rates and payments can adjust up or down as the index changes. An optional ARM is an adjustable rate mortgage with four monthly repayment options.

Although these types of loans became known as "garbage loans" by many in the industry, they were popular among consumers and comprised 50 percent of all mortgages during the past two years.

In El Paso County, foreclosures were on track to reach a record in 2007, according to the Public Trustee's Office. In March, there were 325 foreclosures, a 45.1 percent increase compared to March 2006 and the highest monthly foreclosure total on record.

Aggressive mortgage products and unexpected increases in payments are in part to blame for the rising number of foreclosures, according to The Colorado Bankers Association's 2006 foreclosure analysis.

The problem isn't likely to go away any time soon. More than $1 trillion in adjustable rate mortgages were scheduled to reset in 2007, according to several industry experts.

Economic clusters

The Pikes Peak Workforce Center used a $200,000 federal grant to pay for a study about economic clusters. This is the first time that the Pikes Peak region has been involved in a cluster study that includes all of southeastern Colorado, said PPWC spokeswoman Jeanne Cotter.

A cluster is an economic development strategy that considers how education, training, finance, innovation, infrastructure, government and businesses can work together for business development.

Clusters typically account for about 25 percent of jobs in a community, but their multiplier effect accounts for the remaining jobs. Regional clusters will help all counties in southeastern Colorado compete nationally and internationally, said Kara Roberts, a workforce center board member.

Working together as a region helps counties qualify for federal grants.

Banking competition

In El Paso County, the number of banks and branches has increased significantly during the past 12 years.

In 1994, there were 30 banks in El Paso County and each had an average of 2.5 branches. The number of banks has increased by 13, or 43.3 percent, and the number of branch offices has increased to 150 - - almost 100 percent.

"We definitively have enough banks in town," said David Alley, president/CEO of Colorado National Bank, which opened a branch in Falcon this year. "Competition is healthy. We have two segments: the national players such as Wells Fargo and Chase, and then the local, more community-oriented small town banks that are here. We do compete very heavily on deposits; that is a challenge for all of us."

Local credit union merger

Colorado Springs-based Air Academy Federal Credit Union merged with Independent Group Credit Union.

The merger brought the credit union's assets to more than $303 million and membership to more than 45,000.

"In AAFCU, we found a merger candidate that closely mirrors our mission, vision and goals, said Independent Group President and CEO Jim Gillespie. "We are confident they will provide the best possible financial services to members."

Independent Group was chartered in 1950 as Interstate Gas Credit Union by employees of Colorado Interstate Gas.

Banks vs. credit unions

Nationally, credit unions account for 6 percent of a community's financial deposits, but officials at Colorado Springs-based Ent Federal Credit Union estimate its membership encompasses more than 40 percent of the market share and 20 percent of all deposits in the Pikes Peak region and surrounding areas.