Thursday, August 24, 2006

HUD Program Driving Colorado Defaults

Some forclosure reports from Colorado. "The Denver-area housing market is experiencing far more weakness at the lower end of the market than at the upper end, in contrast to the cooling of luxury-home sales in many other parts of the country. Economist Michael Kone said the Denver market is 'behaving a bit differently' from the overall U.S. market."

"'The bottom end of the food chain is where there is a lot of pain,' Kone said. 'We're looking at some real weakness in the lower end and pockets of strength in the upper end.' In Adams County, for example, his analysis indicates that 20 percent to 25 percent of the lower priced homes on the market are in foreclosure."

The Denver Post. "Timothy Lewis knew he could not save the house. So when the foreclosure notice came, he packed. Lewis, a 43-year-old craftsman who makes house doors for a living, can no longer afford the ranch house he bought with help from the Federal Housing Administration. 'I just can't make it. The mortgage is too big,' he said. 'It's so far behind now, I'd need $15,000 to save it.'"

"A key factor in the state's record-setting wave of foreclosures, critics say, is an FHA program that allows people to borrow more than their houses are worth with little or no money down. Nearly 6,000 FHA loans have wound up in foreclosure in Colorado in the past two years, and during that time the program allowed more than 25 percent of FHA buyers to use gifts as down payments."

"Recent studies say HUD itself exacerbated the problem by sanctioning the gift program, which lets home sellers cover a required 3 percent down payment by routing it through a nonprofit organization. The seller then typically raises his price to recoup the money. An appraiser OKs a slightly inflated house value. Closing costs and FHA insurance premiums get folded into the home loan, and the buyer ends up borrowing more than the house is worth."

"'If it wasn't FHA, it would be fraud,' said John Head, a Denver lawyer who represents victims of mortgage-fraud schemes."

"To buy the house he is losing, Lewis said he participated in a down-payment gift program to sell his previous home. The buyer's agents 'asked me to sell it for more,' he said. He agreed to raise his price by $4,000 and donate an equal sum to a third party providing the buyer's down payment for an FHA loan. The family 'lost it a year later,' Lewis said."

"A small number of mortgage brokers account for a large number of Federal Housing Administration loan foreclosures in Colorado. All passed what federal officials call a rigorous application process for the right to originate federally insured loans."

"Michael Richardson, said his business was effectively closed by December 2004, six months before the Denver field office terminated its right to approve FHA loans. 'My company got infiltrated by a mortgage-fraud ring,' he said. 'In about seven months, they did enough damage to me to put me out of business.'"

"Richardson said he fired five employees in one day after discovering they had been recruited by a man who supplied false loan-application information, Social Security numbers, driver's licenses, pay stubs, to qualify buyers for homes. 'Anything that particular borrower was missing, they'd fix it,' he said."

"Richardson, who had been in the mortgage business for 26 years, said the people who ruined Primero and put many buyers in homes they could not afford have not yet been charged with any crime. 'I'm out of business. Two-and-a-half years later, they're still committing fraud every day,' he said."


At 7:09 PM, Blogger mort_fin said...

Every half filled condo project now has ads like "No Money Down - Move in Tomorrow" Would you want to buy into a building where most of your neighbors "bought" with no money down? Shouldn't those ads be driving away anyone with a down payment? How many foreclosures will those building have? Furniture dumped into the parking lot? Unpaid HOA dues?

At 4:39 PM, Blogger Alan P. said...

You tax dollars at work. We're doomed, dooomed. Thank's for the link, Ben.


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