Colorado foreclosures (Denver: mortgage broker, credit, home equity loan)

[Warp7]

This may sound like a silly question, but can any of the "locals" in the Denver metro area shed some light on what the main causes are for the very high foreclosure rates in the area? I know there are varied reasons that could send people into foreclosure, but those of you lucky ones who live in the Denver area (I wish I could move back there...) probably have a better idea of what the underlying causes are for this phenomenon.

Is it that Colorado has quickly become a high cost/low wage state that just became too expensive for the middle class? Is it large numbers of people buying more expensive homes than they really can afford, and then quickly get in over their heads? Are their a lot of layoffs and company downsizing there that put people under? Is the daily cost of living rising much faster than wages are? All of the above? Other common reasons you're hearing about? Are there particular areas of Denver hit harder with foreclosures?

I'd appreciate the views of those of you who live there and see this, hear this, and read about this in the local media, etc. There are a lot of you who have contributed some excellent info and viewpoints on this message board and I visit this site often for exactly that reason. I know some of you can provide some good insight on this subject.

I'd like to move back the the Denver area after moving away in 1988, but the financial aspect of doing so has me very concerned. I know most people moving into Colorado are coming from states where the cost of living is higher and they're moving to what for them is a less expensive state so they can probably afford it. I'd be moving from what USED to be a low cost/low wage state (Florida, which has now become a high cost/low wage state) to a more expensive state, at least where housing costs are concerned. Just looking to see if there's any way I can pull this off or if it just isn't do-able.

Thanks in advance for whatever insight you can provide.

[2bindenver]

I firmly believe that the root cause is:

1. easy credit

2. Job or income loss (job/health/divorce)

3. Mortgage fraud

[BusySocialWorker]

I think an additional cause may be the slow housing market.. I know many folks in our neighborhood have moved due to relocation etc and their homes have just sit on the market so long... you can't aford to pay in a home you are not living in forever....

[BenWolfe]

I am a Realtor and I hate to point fingers, but I think much of the problem lies with the mortgage industry. Creative financing such as no money down combined with payment option or reverse amortization and to a lesser extent interest only programs have run rampant in this area. Many of the people who opt for these risky loan programs are people who are just getting by and really shouldn't be buying a house at that time. With these types of loans if your house doesn't appreciate as much as you had hoped (or that your lender told you to expect) and you need to sell you are left with no equity and must bring money that many people do not have to closing. Combine that with an average time on market of nearly 4 months in many areas and you have a problem. Many people get frustrated or overwhelmed and just give up and let the bank take it.

Another problem is the housing market. It is becoming increasingly difficult to find a nice house in a safe neighborhood for under $200k. If you are earning $40k that is a significant chunk of your income is going to pay the mortgage payment.

The bottom line is don't buy more house than you can comfortably afford on a traditional 30 year fixed mortgage.

[tfox]

I think the posts you've had here are good reasons.

I think we're facing several factors. First, predatory lending by mortgage brokers. We have virtually no regulation over the mortgage industry unlike almost every other state. So, there's a lot of sharks out there who have committed fraud in getting people in houses that they couldn't afford, and worse, selling home equity loans based on inflated appraisals.

Also, our housing market has been fairly stagnant for a long time. We did not participate in the housing boom of the last few years that the rest of the country experienced. So, that means that in a slow market, people have little margin for error. In a place like Arizona or Florida with massive price run-ups in the last few years, people can cut the price in order to sell. Here that can't happen so people just give up and foreclose.

Finally, our economy is a bit sluggish and has been for a long time. Wage increases are not as common, and people's incomes aren't growing. So, that means trouble.

I wouldn't say that we're a low-wage state, though -- actually if you look at the numbers our salaries are actually higher than the rest of the Rocky Mountain states or the Southwestern states, not including California of course.

It all adds up to a big mess. My impression is that Colorado is a bellweather of what is going to be a nationwide trend. Already Nevada has passed us in foreclosures. My prediction is that a number of other states will join the two of us in this dubious distinction in the near future.

If you're looking to buy a house, the worst counties for foreclosures are going to be Weld county , Adams county , Arapahoe county , and parts of Denver, in that order. If you're not familiar with the area, that means north and east of Denver. South and West of Denver don't have much in the way of foreclosures but of course are suffering due to the flood of foreclosures elsewhere. Denver itself is a mixed bag -- a few areas have lots of foreclosures and other areas are booming.

[gpraceman]

Originally Posted by BenWolfe

The bottom line is don't buy more house than you can comfortably afford on a traditional 30 year fixed mortgage.

I think that is the best advice at all.

We didn't even consider any of those creative finiancing options when we bought our house here. We saw too much in San Diego of people, including some of our friends, going with such high risk loans. Now that the market there has cooled significantly, it is getting time to pay the piper. As someone wrote earlier, you will be seeing lots of other states with ballooning forclosure rates joining Colorado.

I think another issue has been the tremendous amount of new homes that have been built and continue to be built. Builders do need to slow down and cities need to do a better job of managing growth instead of letting these builders build in such high densities. For a seller of an existing home, it is hard to compete with brand new homes in the area, especially when builders are giving substantial discounts, free landscaping and other upgrades to get rid of their unsold inventory.