Reply #5: and get ready for negative equity [View All]

[TexasLawyer]

Playing mortgage roulette
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By John Rebchook. Rocky Mountain News
May 12, 2006

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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.

Next, the downward spiral begins: They can’t afford the higher payment, they can’t sell their homes for a profit, or they can’t refinance because they have little or no equity in their houses or they’re precluded from refinancing because of pre-payment penalties.

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http://www.rockymountainnews.com/drmn/local/article/0,1299,DRMN_15_4694630,00.html