Wednesday, March 30, 2005

Lending Standards Blamed For Denver Defaults

Foreclosure filings have exploded in the Denver metro area and county officials are pretty clear as to who is to blame. "'Lenders started giving money to people, and it's gotten out of hand,' said Jeannie Reeser, public trustee of Adams County. 'I am talking to people who have jobs, but their income doesn't come anywhere close to matching their financing.'"

"Soaring foreclosure filings in Arapahoe County for the first three months of this year helped drive metro Denver's foreclosure rate 34 percent higher than the same period of last year and 30 percent higher than the fourth quarter of 2004. The rate represents 1.3 percent of 125,325 single-family, owner-occupied houses in the county."

One mortgage lender says borrowers should be wiser. "Everybody has to have what they want right now, no waiting, no saving up," he said. "Credit is so loose today that I can buy the groceries I need on a credit card, eat the food tonight, discard the food by tomorrow at noon and finance my debt on a 30-year, amortized loan. How stupid is that? But people do it all the time - and then they wonder why they're in foreclosure." Thanks to the reader who posted the link!

4 Comments:

At 12:21 PM, Anonymous Anonymous said...

'I am talking to people who have jobs, but their income doesn't come anywhere close to matching their financing.'"

Isn't that the truth? I currently rent in Arapahoe County and would love to own my own home, but (like many others here I presume) came to the conclusion that it would be foolish in this market.

I know this couple who both make minimum wage at a sandwitch shop, and recently bought their own condo for 200K. 0% down, interest only of course. They can't understand why I wouldn't do the same, what with payments only being $700/mo or whatever.

A big reason for the high foreclosures in this area is that prices have been basically flat for a couple years. People are unable to get out of their mortgages when they had zero equity to begin with, and have to pay all the realtor fees and closing costs and whatnot. It makes me wonder how much prices are going to fall here relative to other areas. I haven't read any articles about people camping out for condos here like I read about in NY, Boston, etc...

It's tough waiting out this bubble though. I'm about to sign on for another 12mo lease, and I would love to never have a landlord again.

javier

 
At 12:45 PM, Blogger Ben Jones said...

Javier,
Thanks for the local insight. I am sure it helps readers with the context of the Arapahoe situation. I had some posts on high defaults in Denver months ago, so I am sure this has been developing for a while.

It is my opinion that minimum wage earners should not be given big loans. It is not doing them a favor. Rather, they are being preyed upon. Notice how derisive the mortgage guy was about borrowers?

Please keep us updated on the price situation. I, too, want a house of my own. But I'm not going to sign my life away to get it. In the meantime, rent is cheap. Good luck and thanks again..Ben

 
At 1:15 PM, Anonymous Anonymous said...

Javier,

Given you concerns why do you have such a desire to buy? There is no shame in renting. In fact, given current conditions it is the smart thing to do. Renting gives you far greater flexibility. Additionally you do not have to worry about property taxes and monthly maintenance and repairs and the associated costs. You will have the ability to move into the market at a time of your choosing and at your price. Another way of looking at this by looking at the real estate yield. You want to rent when yields are low and buy when yields are high. You can calculate this by taking the rental cost of a property and subtracting the carrying costs of that property and then divide by the cost of the property. I would not be surprised if you come up with a negative yield. If that is the case you most certainly should renew your lease. By the way, your friends who bought a condo with zero % down and have and interest only mortgage are really only renting the property from the bank. They are employing leverage and just betting and price appreciation, they are also exposed to price declines. The great thing about leverage is it is a two sided sword.

 
At 3:40 PM, Blogger Ben Jones said...

Anon,
You are right of course. I read it is $10,000 cheaper to rent than own in San Diego, per year. That should pay for a lot of landlord grief. But I agree with Javier in a way; "I would love to never have a landlord again."

In a couple of years people will pay us to take their house.
Cheers!..Ben

 

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