Colorado Foreclosure Rate

is throught he roof! It is a little scary to see how bad of shape many homeowners are in here. Today there was an article in the Rocky Mountain News aout how ARMs (Adjustable Rate Mortgage) are the big player in these foreclosures.

Now, before you all think this is a post about how to invest wisely in your home, it is more of a post about how full of crap the people quoted in teh article are.

Last year we went house shopping for our first home. Rates were on the increase and with each increase we had to decrease the dollar value we were going to be able to spend on a home. When it came time to picking the company we wanted to finance with and the best rate we were bombarded with requests to do ARMs. Everyone advised us (from the financing companies) to do ARMs since most people don’t hold onto their homes for very long.

We were smart enough to go with a fixed rate mortgage that even a year later has a desireable interest rate for anyone financing now. What’s funny is these mortgage companies and real estate offices that are quoted int eh article are most likely the same people that pushed homeowners into getting ARMs.

While no one, including financing companies, wants to deal witha  foreclosure they new, and most educated investores knew, that interest rates were going to keep climbing. Even three years ago these same naysayers were touting ARMs as the best way to go. Thinking the low interest rate ride was going to keep going.

Have we learned nothing from the past? Do people not understand cycles and that steady growth is preferable over rapid growth? Or are people jus setting themselves up for failure about every 5 or 6 years?

I really do feel for everyone that is feeling the pinch that got ARMs a few years ago and those that got them in the past year are probably even more nervous since rates have continued to climb and they could be in even worse shape a few years from now.

In the end, this post is just pointing out how businesses will jump the bandwagon to look good. Everyone that touted ARMs as the greatest thing on earth as recent as last year are now saying “Stay away!”

Oh, and Happy Mother’s Day to all you Mom’s out there!

3 thoughts on “Colorado Foreclosure Rate”

  1. It was the same with us jay, the mortgage broker said “yeah, its usually a nice way for you to get a little more house for your money”.

    Luckily we also chose a 30 year fixed, I didn’t want to screw around with ARM’s.

    ARM’s can be a good thing in a stable market, but with interest rates so low, you KNOW that can’t be a long-lasting trend. if you buy an ARM when the interest rates are riduclouslly low, your rate is bound to go up.

  2. Who buys a true ARM these days? A vast majority of ARMS are of the 3/1 or 5/1 type. Which is a pretty smart play if you are a young buyer and probably not going to be in the house forever. How much does your payment change with the increase of rates? Not much. I think I read something like a couple hundred bucks on a 250k loan if the interest rate goes up 2 points. Which should be doable if necessary and definately shouldn’t drive people to foreclosure.

    If you ask me the real problem is the pyramid nature of real estate. In order for prices to keep going up there need to be buyers and in order to finance those buyers the banks need to relax their lending restrictions and allow people to buy more house than they should. So people start out with a house they can’t afford, have to tap into the equity to keep up and as soon as prices slow they run out of cushion. Also allowing buyers to tap into 100-110% of their equity is a big mistake. There should be restrictions on what you can use that money for (home improvements, repairs, etc are ok. Boats and jet skis probably not). I have been looking at foreclosure properties and finding one that is not mortgaged to the hilt is damn near impossible.

  3. Those are good points Matt, I am no just blaming the lenders and realtors, the buyers are just as much at fault. We were offered lending for twice what we wanted to buy. Sure that would have bought a swell home, but we would be taking the bus and eating ramen.

    What’s hurting people are those with a short ownership time frame. The housing market is tightening up and it’s taking longer to sell houses. People that had 3 or 5 year arms that are coming due (to refi or sweat it out) don’t have much equity in their homes.

    They are having to refinance at higher rates and in many cases were unwise with what equity they had and probably have a heloc or something else against it and are just screwing themselves.

    This is like the Credit Card disaster of the late 80’s early 90’s where credit issuers ruined many lives. Was it all their fault, no. The greedy consumer pushed to live beyond their means for whatever reason. Irresponsible lending and credit approval damages lives.

Leave a Reply

Your email address will not be published. Required fields are marked *