By Jim Spencer
SpencerSpeaks.com

September 21, 2007

The Arapahoe County Assessor’s Office employs Cherice Kjosness. But she has spent a lot of time lately working around agents from the FBI and the Colorado Bureau of Investigation.

“We had significant (mortgage) fraud in Arapahoe County,” Kjosness explained to 50 people gathered Thursday night to hear a panel discussion of the foreclosure crisis in Aurora. “At this point, there have been no prosecutions, but I suspect there will be.”

Punishing the quick-buck artists who originated millions of home loans without caring if they were repaid would be one way to head off another lending disaster like the one that has now driven the U.S. economy to the brink of recession.

“If these guys were seen as being as bad as drug dealers, that would help,” said Rex Wilmouth, who leads CoPIRG, a public interest lobbying group.

That likely won’t happen. But the measure of misery brought on by all the not-so-funny money is difficult to overstate.

Morgan Carroll, who represents Aurora in the Colorado House of Representatives, told the crowd that she lives in a neighborhood with a 55 percent foreclosure rate.

“Once there is a spiral of foreclosures in a neighborhood, all the houses are affected,” said Carroll, the sponsor of Thursday’s town hall meeting.

Saving your home if you miss a few payments was one of the evening’s major themes.

“We don’t want people walking away from their property,” said Kathi Williams, the director of the Colorado Division of Housing, which helps operate the Colorado Foreclosure Hotline. “We have talked to major lenders to find ways (to save homes from foreclosure). If a person has any income at all, we say, `Let’s do a loan modification.’”

Williams claimed an 80 percent success rate in saving the homes of those who called the hotline.
But Colorado and the country are hardly out of the woods. Williams offered a division of housing study that predicted a 34 percent increase in Colorado’s foreclosure filings from 2006 to 2007.

Payments on roughly $4 billion in adjustable rate mortgages will rise next month with an average increase of 30 percent, David DeElena, the president of the Aurora Realtors Association reported.

The number of people who can afford a 30 percent hike in their monthly mortgage payment is small. But it is minuscule among the overextended borrowers who got many of the current adjustable rate mortgages. These loans went to people barely able to pay the initial teaser interest rates.

The loan originators didn’t care, said Wilmouth. They make their money processing high volumes of loans. They don’t have to worry about collecting on those loans. So they “are not looking at the details of whether someone can afford the payments.”

Kjosness called this “unrealistic income and expense analysis.” The result, she said, were borrowers who ended up in “homes way beyond their means to pay.”
Some of those homes have mortgages worth more than their actual value, Kjosness continued, a situation called negative equity.

Equity is the value of your home in comparison to what you paid for it. Traditionally, people have seen their home values grow with inflation. In this real estate market, home prices are not just static, said Carroll, in some cases they are deflating.

The ramifications for the overall economy are horrific.

In recent years, DeElena explained, people have used home equity lines of credit “to pay off car loans or credit card debt. Now, homes have no equity left to do that.”

Congress is trying to step in with better government-insured refinancing options.

Lenders are trying to work with borrowers because, Williams said, lenders lose, on average, $30,000 to $50,000 when a foreclosed home is sold at auction.

New borrowers are now going through more rigorous financial qualification processes and getting more education to understand the hidden costs of home ownership.

But right now, no matter how you dice it, the foreclosure crisis remains a perfect financial storm with no end in sight.

Copyright 2007 by Jim Spencer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.