Colorado
Foreclosures:
Why are they so high?
Colorado Foreclosures are at an all time high. These Colorado Foreclosures have followed the same statistics found in many other markets throughout the U.S. So in short we are not experiencing anything that is not in line with national averages. However, we are experiencing some of the worst Colorado Foreclosures ever recorded in Colorado History. There are many reasons for the Colorado Foreclosures. I will try to break some of these reasons down for you today. The first and most obvious reason for Colorado Foreclosures is that Home owners are not making their payments due to economic hardships. Loss of employment for one or both members of a house hold will play havoc on their ability to make payments. This is really self explanatory and based on the state of the economy we are seeing many households faced with this issue. Colorado Foreclosures have always had these factors contributing to its statistics, but there are even bigger issues going on. Colorado Foreclosures are experiencing new phenomenon’s in the industry with the adjustments of the once popular Adjustable Rate Mortgages or ARM’s.
There are many types of ARM products available and not all ARM products are bad. The issues that Colorado Foreclosures are facing are the Subprime ARMS commonly know in the business as 2/28 or 3/37. These programs were designed to force homeowners to refinance after 2 or 3 years. We called these band aid loans because when the adjustment period starts it will actually adjust 2% every 6 months until it hits the market cap rate around 12.5%. You can see why Colorado Foreclosures were impacted so quickly. Home owners that got into a 5.5% 2/28 program actually jumped up to 7.5% and 9.5% before the 3rd year ended. Colorado Foreclosures spiked because homeowners had to make payments that got out of control. As I stated before these programs were designed to get out of after the 2 or 3 year period but something held them back. What held them back was the fact that homes were not appreciating to a point where refinancing was possible. FHA home loans require a minimum of 5% equity in the home and were designed to be the loan these clients got into after the adjustment period began. Colorado Foreclosures and bad economic conditions forced many homes on the market and with the supply so high Home prices tanked.
