May 28, 2006

Colorado foreclosure rate #1 again - unregulated predatory mortgage brokers to blame


What the heck is going on in Colorado that makes it the national leader in foreclosures? Are the lenders out there even more evil than other states? Os - enlighten us here... I guess the good news for me personally is I intend to move back to Colorado one day - and looks like I'll have my choice of dirt-cheap houses to buy...

Remember, that once these evil mortgage brokers get the sucker, I mean the buyer, into the loan, they get rid of the hot potato - and Fannie or Freddie and then the Chinese hold the bag... These bad loans are going to hurt someone besides the bankrupt buyer in the end - and I think it's the foreigners holding the bad debt.

From a KRDO in Colorado Springs report:

Colorado reports the highest rate of home foreclosures in the United States for the second month in a row.

Colorado is one only a few states in the country with an unregulated mortgage industry. Consumer advocates say some lenders take advantage of their loose leash. Critics say lenders in the state don't fully educate their buyers. And worse yet, FBI statistics put Colorado in the top ten states for mortgage fraud each of the last three years.

Many buyers are apparently talked into using loans that aren't right for them. For example most buyers shouldn't be setting up interest only loans that will increase to include principal payments after just a few years.

For most buyers, once they start paying the principal their payments go up substantially, forcing foreclosure.In Colorado the responsibility to avoid these problems is with the consumer. The Better Business Bureau recommends calling them before deciding on a lender.

24 comments:

zinger said...

U.S. Gov't officially POPS the HOUSING BUBBLE.

By STOPPING Fannie Mae from accumulating home loans in its own investment portfolio...

All that subprime money feeding the newcommers is going to dry up.

IT TAKES 3 THINGS TO SELL A HOUSE!
#1) A WILLING SELLER
#2) A WILLING BUYER
#3) A WILLING LENDER

THE U.S. GOV'T JUST ORDERED THE BIGGEST JUNK HOUSING LENDER OF THE ALL, FANNIE MAE TO STOP LENDING!!!!

THE IMPACT OF THIS CAN NOT BE UNDERSTATED!!!!!

The U.S. Gov't just ordered Fannie Mae to STOP lending last week. Mortgage brokers use their own funds to make a few loans then sell those loans to Fannie or Freddie to replentish their bank accounts, so that they can originate new loans.

Its possible that lots of current in-contract sales will never be completed. If you are a seller who is fortunate enought to be in contract right now--- don't count your chickens untill your title company tells you that they received the funds from your buyer and transaction has been closed.

CONaive said...

CO is an amazing place. 20% annual gains in 2001/02 and then missed out on the run-up since then. Dot bomb killed the RE market,but low interest rates kept the heloc, cash out refi and move-up buyers going. Its going to be free fall from here.

Osman said...

Here's how the foreclosure situation in Colorado breaks down by County. Note Boulder has the lowest level of foreclosure of neighboring counties. I did a quick back of the envelope analysis (using Census data) of how education and median income relate to the foreclosures, and it looks like a very clear relationship. The lower the education rate and income level, the more foreclosures. Pretty much where you'd expect predatory/shady lending practices to have the greatest impact.

keith said...

excellent post osman - thank you for the data

Anonymous said...

I'd love to see the foreclosure numbers run against fox news viewership level numbers

I bet there'd be a strong tie there too

ignorance and lack of education leads you to embrace patriotism, embrace the politics of hatred, and embrace that interest only loan you can't afford

foobeca said...

If you look at the demographics, those in the lower income/education groups vote heavily democrat. Those in the upper middle class and rich vote heavily republican.

Osman said...

Foobeca, you're right for the most part. But it's not always that way.

Given the wealth and education levels you'd expect Boulder to be a conservative, Republican dominated area and Colorado Springs to be lefty liberal Democratic. In fact, I think it's pretty much the opposite. Perhaps an anomaly, but there are other strongly Democratic yet wealthy/educated enclaves.

Out at the peak said...

The wealthier I become, the more Republican I feel. However, I'm still anti-Bush (as he does not conserve fiscal policy).

If Fannie Mae permanently stops lending, then that will cause some havoc.

Colorado is on my top five and if I can get a nice place cheap (in 2009+), I'll be excited.

Chris G said...

According to what I've read, the US gov't placed a cap on the amount of loans that Fannie Mae can have. That is a lot different than saying that they have to stop buying mortgage loans.

If a mortgage loan is paid off either through making all the payments or through refinancing, Fannie Mae can buy another loan at the same amount.

As long as there is a housing market, there will still be mortgage turnover and Fannie Mae can still buy loans. But will this cap have a disastrous effect on the subprime market? I think the simple fact that a higher percentage in the subprime market head toward foreclosure will have a far greater impact on the market than putting a cap on Fannie Mae.

Osman said...

Chris, where are you reading about Fannie/Freddy's cap?

By the way, for many years now the commercial and investment banks have been harshly criticizing the market advantage of the Fanny/Freddy through their implicit government backing. The move may have less to do with Fanny/Freddy's books and more to do the lobbying efforts of their competitors.

Anonymous said...

Fannie Mae doesn't (or isn't supposed to) buy subprime mortgages.

Most of these go into private MBS packages.

There will be an effect from leashing in Fannie, certainly, but the primary blame ought to go right to the greedy sleazy mortgage brokers who "stuffed" naive people with junk loans.

Yes it's true that much of the carping against Fannie is motivated by competitive greed---i.e. "We want to do some of that market raping and extract massive stock options and bonuses too but you meanies make it too hard."

That's why it's so shocking and stupid for Fannie to act so sleazy---they should have known that stupid tricks would erase their political support.

If Fannie had stayed the pristine high-quality nice guy with no cockroaches on the books and no executives paid like Croseus for cheating, then the competitors wouldn't have a chance.

keith said...

foobeca said...
If you look at the demographics, those in the lower income/education groups vote heavily democrat. Those in the upper middle class and rich vote heavily republican.


foobeca, unfortunately you have no idea what you're talking about and are completely wrong on educational level. That was the case in the 1950's, but the hijacking of the republican party by the religious right turned that around completely.

the higher the education level, the higher percentage of democratic voters (blue states)\

Here's the actual numbers from 2004:

http://tinyurl.com/oz4lj

unfortunately, those uneducated folks love their patriotism and hate their gays. those educated folks are more tolerant and less jingoistic

conaive said...

That is a great link from Osman. Check out the "Worth Reading" section and the link to prior housing busts. Looks like someone in Boulder is thinking ahead by looking at history.

Chris G said...

Chris, where are you reading about Fannie/Freddy's cap?

Osman, it was on the front page of Wednesday's (5/24/06) Wall Street Journal. The applicable quote is as follows:

"Ofheo ordered Fannie to limit its mortgage holdings to $727 billion, the level it held at the end of 2005, unless it gets approval from Ofheo for any "moderate" increase. The mortgage holdings stood at $721 billion at the end of March, the latest available data."

I meant to say in my last post that they are capping the DOLLAR amount of loans. Also, I didn't mention about any limitations that Freddie Mac may or may not have.

uknowwhoiyam said...

From the article:
In Colorado the responsibility to avoid these problems is with the consumer.

Yes, but it's so much easier to blame someone else.

http://tinyurl.com/elhzg

Anonymous said...

http://tinyurl.com/oz4lj

There you go. Statistically, better-educated people tend to be liberal.

That would explain the sudden desire to legalize millions of illegals with no education. Or perhaps I'm too cynical.

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