by Calculated Risk on 5/13/2006 12:29:00 AM

From the Rocky Mountain News: Playing mortgage roulette

Thousands of Denver homeowners gambled on adjustable rate mortgage loans three years ago. Now those bets are coming up short. These homeowners are facing the hard truth that their ARM mortgage payments are going up several hundred dollars more each month as their rates adjust skyward.

The higher payments are expected to cost many homeowners in the metro area tens of millions of dollars in extra mortgage payments and drive up the already near-record number of foreclosures.
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It's a national problem, with an estimated $2 trillion in home loans expected to adjust upward in 2006 and 2007, according to Economy.com, a research firm based in West Chester, Pa.

And the Denver area may be particularly hard hit, because homeowners in Colorado on average have little equity in their homes.

In Colorado, 28.5 percent of homeowners have 5 percent or less equity in their homes, and 47 percent have 15 percent or less equity, according to a report released earlier this year by Christopher L. Cagan, director of research and analytics at First American Real Estate Solutions in Santa Ana, Calif.

Only Tennessee homeowners, on average, have less equity in their homes, according to the report.

This lack of equity is one on the driving forces behind the rising Denver-area foreclosure rate, according to many experts.

This year is on track to eclipse 2005 as the second worst year ever for foreclosures. Last year, more than 14,000 Denver-area homeowners defaulted on mortgages.

Increasingly, people who locked in three-year ARMs with rates in the 4 percent range are finding loan rates rising by 50 percent or more.

Foreclosures In Columbus Are Rising

"Alot of people actually financed homes they could not afford,"says economist Dr. Mike Daniels.

And now some economist say the local housing bubble could burst. Experts say forclosures in Columbus are up 25 percent from last year. The culprit -- rising mortgage rates. Something a lot of homeowners didn't budget for.

"I don't think people really read the fine print about what was going to happen to their payment when the interest rates went up,"says Daniels.

Home foreclosures soar, with Georgia leading the way

New Hampshire foreclosures up; mortgage rates drop

In areas that have seen substantial appreciation, foreclosures are rising, but are still very low. In areas like Denver, foreclosures are already near record levels. Speculation, using exotic mortgages, was nationwide and the negative impact of foreclosures will probably also be national in scope.