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Foreclosures...What the Public Perceives

graph of foreclosure reasons

Foreclosures...What the Public Perceives

Colorado has a high number of foreclosures. As always it is important to know why this has happened and what we can do to fix it. The Denver Business Journal runs an informal survey of what readers are thinking. I find it rather curious...let me explain.

First an important category was left off; builders. New home sales have a huge influence in the market, homes are sold with huge incentives to the purchasers, while these incentives appear to be "free" are in fact built into the price of the home. Many homeowners find themselves having to stay in the home longer than they planned simply because the home's value hasn't caught up to the neighborhood solds. This oversight by the Denver Business Journal is huge. It skews the rest of the categories out of proportion.

However let's review the categories they did offer...

Unregulated mortgage brokers? Sure we have many bad mortgage brokers, but can they be blamed for the high number of Colorado foreclosures? Hardly. Mortgage brokers as a group are delivering a product the public demands. They can't judge who is responsible with their money and who isn't.

Unethical Realtors? Of course there are unethical Realtors, just like there are not so wonderful people in other industries. Blaming Realtors for foreclosures is like blaming the cashier at the grocery store when you forget to buy milk. Realtors are a small part of the whole picture. Most Realtors take their lead from the consumer and seldom force anyone to buy a home.

Unethical Appraisers? Obviously this was the lowest rating, but why is that? Appraisers base their values on history. As a group, they are the most conservative, people I know. They also have the least to gain for being "unethical."

Slow economy? This answer is closer to the truth. Expectations of appreciation that doesn't occur can hurt homeowners needing to sell now. It's is unfortunate but true.

The biggest reason for homes going into foreclosure is due to stupid home buyers. I don't like the term "stupid" that came directly from the Denver Business Journal, not me. I would prefer to call the home buyers "uninformed." The trend for borrowing this past decade has been to borrow as much if not more than the home is worth. 100% financing is the root of the problem, irresponsibility is the cause.

The Reality...

Uninformed home buyers have made a commitment to purchase a homes they should not be buying. Mortgage brokers and Realtors are part of the process, but they are delivering the results the consumer wants. Whether the consumer is responsible enough to live up to their commitment is not a reflection on the real estate industry.

Real estate is like any other market it goes up and down based on demand. Buyers who have the expectation the market will continue to go up are naive and uninformed.

Taking out a loan for 100% financing is a huge risk, if the buyer is not stable both in life and employment. Buying a home with "no money down" only means you need to live in the home long enough to get equity in it or come to the closing table with money. In a slow market this could mean having to stay in a home even when the family has outgrown it.

Taking out a mortgage comes with the responsibility of paying it off. It's not a promise to pay as long as the homeowner "feels like it." It's a promise to pay no matter what.

How can a home buyer get informed? Start with learning all about mortgages and how they work. Don't compare just the interest rate and closing costs, compare apples to apples by getting a Good Faith Estimate. Only then can you determine what the cost of money is. There are many mortgage bankers/brokers who will take the time to learn about you and your needs. A good mortgage broker will offer you a consultation during which you will learn about all your alternatives. Find out what a mortgage banker will be willing to lend to you, then do a self-evaluation to see if this figure is in line with your current budget. Set a realistic limit and don't go above it.

In all fairness the Business Journal does state the survey is not "scientific." In fact it is currently active and will be changing daily until the next survey is published. It will be interesting to see how it ends.

Posted by Kristal Kraft ~Denver Real Estate~303-589-2022 on 11/02/2006 09:39 AM

Comments (39)

foreclosure, responsibility, denver real estate, colorado

Originally posted at: Denver Real Estate & Relocation: Foreclosures...What the Public Perceives

This post has been included in Colorado Information

39 Comments on Foreclosures...What the Public Perceives

NOV

2006

Kristal... I gave you a 5+.... this is good, especially the client comparing apples to apples on the mortgage side. So many clients just go off phrases such as ... " I promise" "don't worry" "trust me". All that make the client feeling a good warm fuzzy feeling that they are in good hands. They need someone that will educate them and spend more than 5 to 10 minutes on the phone with them.

Sure....the blame can be placed all over. But a great point about the builders and them building costs into their home. ie: incentives. These aren't free people.... the client pays for them, but not out of pocket. And when you go to sell or refinance, that value you paid previously might not be there because they can't add these intangibles into the price.

KK...good job.

Great post! Have a Wonderful day!

Good post Krystal. I got a call and some heat yesterday from a reader of my article, blaming me and the mortgage business for what is happening in the foreclosure market...I help my clients make informative decisions, but it ultimately comes down to their decisions....Finger pointing...

Scott

KK.... here is a blog I wrote several weeks ago. Rules that aim to cut the risks on 'exotic' mortgages!!!!!

Here is something from that blog. "...in August, the national foreclosure rates were 53 percent higher than they were in August of 2005."

I think that people think that a Forclosure is a free lunch. AN easy way to make money.

This is typical. A media outlet runs a story based on opinion, not fact. Who cares why these people THINK the foreclosure rate is higher. How about a story on why it is higher.

More often then not the reason for forclosure is income loss, not a bad loan. Income loss due to unemployment or an unexpected medical condition.

Kristal

This seems to run in cycles. I can remember back in 1988 on the nightly news, when they mentioned that people were buying foreclosures in Boulder for under $1,000. While not typically a cynic, as long as there are no licensing or other requirements to become a lender and no substantive review of Realtor practices in this area, I doubt that we will ever get away realtors and lenders stuffing people into properties and loans that are certain to result in foreclosure.

So many different reasons for Foreclosures...here in CA we are seeing quite a few due to the type of loan that the Buyer got into as an uninformed Buyer. But, there are those that go through it for other reasons as well including using their equity as an ATM machine and finding suprisingly enough that they can no longer afford the payments.

Good post Kristal...I've been watching your market there in Denver for sometime now, through my friends and found when we were selling homes within an hour, it was taking a year or more for re-sales in your area. Denver has really gone through a crunch with all the new building for some time, now. I hope that it turns around, soon.

Couldnt of been said any better, scott gormley wrote a blog that also relates to this

Let's face it, the credit card companies bear a lion's share of the blame for causing stupid consumers. Granted, it's still ultimately the consumers responsibility to stay within their means, but extending credit creates a false sense of spending confidence. Does that make any sense?

OMG! In Georgia, the foreclosure capital of the world, Everybody tries to be a forclosure investor. Many wind up losing thousands!!!!

Wow..great post!!! I think in next few years we'll see a lot of this.

Kristal: Blame is not the same thing as cause, but surveys and respondents often tend to confuse the two. The slow economy and saturated market in real estate may be real causes (as is greed/stupidity), but most prefer to place the blame on anything or anyone other than themselves--or a condition they helped to create.

Our market in Vancouver has been hot for the last 3 years and we are now experiencing a slower market. Some people I have spoken to are specifically waiting for these foreclosures to come about. Funny enough I'm expecting November through the end of January 07' to be a great opportunity for buyers to find some great deals.

You stated the following:

"How can a home buyer get informed? Start with learning all about mortgages and how they work. Don't compare just the interest rate and closing costs, compare apples to apples by getting a Good Faith Estimate. Only then can you determine what the cost of money is. There are many mortgage bankers/brokers who will take the time to learn about you and your needs. A good mortgage broker will offer you a consultation during which you will learn about all your alternatives. Find out what a mortgage banker will be willing to lend to you, then do a self-evaluation to see if this figure is in line with your current budget. Set a realistic limit and don't go above it."

This is where a mortgage professional comes in to the picture, it is our responsibility to help educate the consumer...afterall we are the industry experts. If you are thinking of disagreeing please consider these first: you go to a doctor when you are sick instead of attempting to diagnose yourself because they are the industry expert, same goes for financial planners, CPAs, attorneys, etc.

Unfortunately with places all over the internet and the bad loan officers people generally do not view us in quite the same way as they do the other trusted advisors I just mentioned.

Just some food for thought also, from what I have seen a GFE is not always a fair comparrison even though it is supposed to be. This is unfortunate for the borrower since that is the whole premis of getting a GFE.

Dennis,

But how would we get the "real reason" for foreclosure? I worked in marketing for a small college before joining the real estate profession. At this University we had an alarming number of students that left after the first semester (our peers were at 95% return rate, we were at 79%). The answer everyone had was "let's ask them why they are leaving." And the results proved nothing, we got "softball answers" or the "out to get someone answers." Which did nothing to address the problem. And while we are not talking about exactly the same thing, really the only way to get the "facts" on foreclosure is to ask those that have been foreclosed upon - and I'm willing to bet not a single one of them would say that they were "stupid buyers".

Besides public opinion about why we have so many foreclosures is probably stronger than the actual facts. Americans tend to never allow facts to get in the way of a good lynching.

The reasons for foreclosure are sad and numerous, but the misconceptions surrounding foreclosure investing is one of my pet peeves. People are led to believe they can buy homes for pennies on the dollar and turn around and make thousands in profit. Here's a link to an article I wrote some time ago and re-posted in late September.

Kristal;

Point well taken. Buyers certainly need to do their homework. I've always recommend to my buyers to get more than one opinion especially when it comes to mortgages. The final decision to buy is up to the customer not us as their realtors. Our goal is to help them find them their ideal home, while their's to make sure they can afford the payments that their financial institution quoted to them. If it turned out to be more than what our estimates were, then they the buyer have a decision to make not us. They need to consider the 'what if'. Loss of Job, Health Issues, Changing Families Circumstances, etc.

KK.. Two more things I wanted to point out.

1st.... in regards to who is at fault and that people are accusing stated loans and pay option arms are at fault.... Yes & No... I wrote this as a comment in another blog earlier today.

We talk about stated vs full doc. But just because you have income to prove, doesn't mean that 2 months from now, you will be able to pay...even though it was verified and met all guidelines. It's called.... unemployment.... getting fired.... job lay offs.

2nd thing....Allan Page and so many of the realtors talk about the fact that you need to see a good faith....compare apples to apples. When will people wake up and read in between the lines. This is 30% of the problem. ANYONE can give a good faith estimate. Is it going to be true or correct? NOT ALWAYS. And Allan did mention this at the end. And yes, this is called bait and switch.

My whole point is... we blame on people here...we blame it on people there.... but what about those clients that were told a certain payment and go to closing and it's $200 higher. Should they back out....??? Are they afraid too? Are they talked into it and told that they can make it? And also...the emotional side. "We love the house..." "we have come this far" etc etc

These are other factors that aren't talked about. I haven't read any of these examples in any blog that talks about foreclslosures, fraud, predatory lending.... and yes, they aren't even mentioned in my blogs. But we need to look at this also and not just the so called "bad" programs and education. You can't educate real bait and switching, until it usually happens.

Just my 15 cents.... ;o)

lol... netta.... I ws writing this.... took a few phone calls and finished my comment. And you said part of what I was trying to address. Great minds think alike? ;o)

Our society trains our minds to TRUST THE PROFESSIONALS...

So that's what they do, they TRUST mortgage brokers, they TRUST Realtors, to make sure they are buying a home that helps them live below their means and that the loan is structured in a way to keep them living below their means.

It's hard for Mortgage and Real Estate Professionals to keep that in mind when it means smaller commissions AND bigger than that...When they aren't living that way!

The mentality is that we can get them into a home no matter what their situation is. (And they'll do this by quietly breaking the law)

Another part is just our society in general that wants to "keep up with the Jones'"

What else can be said? Amen

Well said! I see buyers whose eyes are bigger than their wallets. I have to remind them that they don't want to be eating cat food for the rest of their lifes. Buying a house that is more than they can afford or NEED is silly and risky. And who told sellers that their houses are worth a mint just because THEY owned them. Sometimes it pays to stand back and get some perspective.

Good info Kristal, People don't prioritize making payments, contracts mean nothing, leases can be broken whenever they feel like it, marriages last a year or two. In general people these days just do not have any sense of responsibility.

It also doesn't help that we are bombarded with banks wanting to give us money, ads telling us that we need this and that and of course 100% mortgage financing with a 580 credit score. Heeeello!

Bryant,

Great comment about broken promises, contracts, marriages. We're trained to think we can have what we want... and have it now. If it doesn't work out, we ca walk away and move on. The baggage follows and it just keeps adding up with the same mentality. Hellllo is right! One of my favorite inspirational speakers is Jim Rohn. One of my favorite quotes of his goes something like this: "No matter what you do in life, you WILL suffer pain... the pain of discipline or the pain of regret". The good news is we get to choose. And for many that is the problem.

Great Blog !!

More accountability for the "professionals" involved wouldbe a start.

When too many are blaming the mortgage brokers for so many foreclosures, I'm glad to read this blog and the comments, this is up to us to educate people about wrong and right when it comes to real estate.

I want to add an incident that took place last week in a networking group I attends. New face, a lawyer, as soon as I've said my profession, he goes : Thanks man, thanks for all the business you guys provides me, you people are the people I'm taking to court these days..."

People were looking, and awaiting for the outcome, I smiled while saying "It doesn't sound like you know too much about financing or real estate, I think you should find something else to do that better fits your abilities...and attitude.

Bottom line, things are happenning, and not all customers wants to listen to the good advice from us, I experienced few of those myself.

Yet, there are some ways to avoid foreclosures, sometimes, and you are all invited to read my blog Avoid foreclosures

Kristal

I could have not said it better. So, RIGHT ON.

Educate them and let them know the lender does not want foreclosure. Call your lender and let them know of your hardship and they should work with you, so you can get back on track.

I know when buying a new vehicle you can miss one payment a year and not get pentilized. But, of course you have this payment tacked on behind what was your last payment. So you still will make that payment just not that month.

Great post.

Curious..... has Kristal been sleeping through all of this? She usually stops in on her own blog and makes some comments.... hope all is well. Or just busy? taking a break?

Jeff ~ thanks Jeff, I appreciate your comments and support. I do believe buyers really do think they can do it. Sometimes we humans overestimate our powers. Sad but true.

Colleen ~ your beach pictures are the best. That looks just like me a million years ago! :)

Scott ~ how does the saying go..."when you point a finger there are 3 more pointing back at you." :) I must go search out your article. Link to it here if you come back to visit...pretty please!

Jeff ~ Wow! 53% is major huge...thanks for the link.

Christine ~ I don't understand how they can make money...perhaps you are referring to having a few months of "free rent?" What people may not know, foreclosure is worse than a bankruptcy. A BK goes off your credit in 10 years. A foreclosure stays with you FOREVER!

Dennis ~ True income loss, divorce, death, loss of interest in owning a home, sickness, etc. Many things. Typically the DBJ is very responsible. I think this survey was thrown together just to do something. Not too much thought...

Dave ~ I agree some of the "professionals" do stuff people into things they shouldn't. I've always warned agents never to make a decision for a homebuyer based on the necessity of having to make your car payment...that is the agent's car payment. When we have so many agents/mortgage brokers living on the edge of BK there is bound to be sales based on greed.

Gena ~ Our market hasn't been as hoppin' as the California market, but our "days on market" have never been over a year. Maybe individual homes that were not priced well. Most of our foreclosures are in low income areas, new home subdivisions. Colorado was hit hard with the IT crash, we had the highest IT worker per capita in the U.S. So when that happened we took it hard. It's much better now. The INVESTORS are here!

Eddy ~ Thanks Eddy, I missed Scott Gormley's blog somehow, I will go look it up. Now go kiss the adorable new baby boy! He's not going to stay little for long!

Rich ~ Dones that make any sense? Heck no! Rich, you just gave me blog fodder...brilliant man!

Jennifer Giraldi ~ Foreclosure chasers....it's works but only when the banks "get real."
Most REO's are priced according to the market. As is, now is that a deal?

Monika ~ Yes, we will have to sop up the nasty's of the past. But this too will pass.

Roberta ~ It gets back to taking responsibility for one's actions. What ever happened to that? Did we bury it and I missed the funeral?

Ryan Windsor ~ It has been my experience January and February are always good months to get "a deal" the inventory is hot to sell and the buyers have been working off the eggnog, not looking at houses.

Allan Pape ~ So well stated Allan! There is nothing more important than taking the time to learn about the process and how it will effect you. A consultation with a professional, who puts the consumer's interest first is priceless. That's hard to do over the internet. The best way to find a good lender is via a referral from someone who can give testimony to the honesty and performance of the lender. Do you agree?

Toby ~ you have a good point there, one I hadn't considered. Perception is reality. So if the public thinks it the lender's fault, perhaps they are dealing with too many less than wonderful lenders...hummmm

Netta Blackwood ~ True words Netta. It is hard to know how much a buyer can handle when you aren't involved in their finances. I don't know about you, but I seldom know the financial end, I leave that up to the consumer and the lender. Back in the olden days, I knew because then we used to "qualify" the buyer by asking all those questions. But then too, we didn't take them to a lender until after we found a house. Totally backwards it was. I don't remember when it happened, but we gave up our power to the lenders. In retrospect that was a mistake...maybe. Now there are so many loan options, I can't keep up with them. I haven't done a VA or FHA loan in ages! :)

Carol Williams ~ Thanks for the link. Oh yes, we are back to the "wholesale" scam. I must blog on that one soon.

Jeff Belonger ~ Bait and Switch is a very popular game I see played all too frequently. The lender person gets the borrower over the barrel the night before closing and the buyer has no option but to "walk away for their earnest money." No deal. (another good point from you, who does not sleep and blogs before eating!)

Robert Rees ~ more good points. Keeping up with the Jones gets everyone in trouble. Now there's blog fodder for you...who owns right to "keeping up with the Jones?" Robert I bet Jeff B. will do it...just watch! :)

Brian Brady ~ only amen? I know you've been telling us this all along. Preachin' to the choir we are! ;)

Dena Stevens (of beautiful Pueblo West!) great point. I believe one should be made to live in a tent for a year, then go buy a home. :) reality meets reason.

Bryant ~ your point is blog fodder for sure. Responsibility has lost it's meaning to many. Like I said earlier, was their a funeral and I missed it?

Carol Williams ~ instant gratification, did it come from TV or parents and teachers who praise just because little Johnning needs to "feel good" even when little Johnny needs a wooden spoon bounced off his behinny. (omg the cops are coming for me!)

Lauren Corna ~ Thanks Lauren, I appreciate you stopping by.

Marguerite Crispillo ~ accountability is part of the answer.

Eli Magen ~ Eli please link your blog to your comment, it certainly applies to this blog and would add value. We need to work together to educate the public.

Susan Trombley ~ good suggestion. There are many ways to "workout" a foreclosure, as in PRE-foreclosure. I just attended a seminar tonight that spoke to the process of this. More later...

Thank you everyone for stopping by and commenting today. I'm very happy to have so many excellent responses...keep on bloggin'

Jeff, busy, very busy. I actually was not sitting in front of a computer all day. Sorry, I'm not ignoring you, just trying to keep the economy going...I need help!

NOV

2006

Kristal, I appreciate your offer, but

I don't know how to link my blog to my comment... can you show me the way?

Thank you, Eli.

A lot of this seems to be "second guessing" after the fact. As in the stock market, you can find a "talking head" that supports every conceivable "vision of the future". (I was going to say Crystal Ball but didn't want Krystal to think I was making some sort of reference to her - I'm not - but I do use the term crystal ball frequently - :-)) It's easy to be right in retrospect. Someone is always right about the future. The art is knowing who is consistently right about the future. Is there such a person?

Eli Magen ~ Just for you I have written a post about how to create a link. Please check it out and tell me if I need to make it clearer. Sometimes when you know how to do something you forget how to break it down into terms someone who doesn't know can relate too. I await your reply, successful or not!

Tony ~ God knows. We just have to do the best we can do. If we knew what the future held for us, it would take all the fun out of exploring what is over the horizon. At least for me it would be. I love the serendipity of life. Sometimes its good, sometimes we have to dig in harder. It's the dig in times that make us better people, or at least stronger. Thanks for the comments Tony, as usually you are thoughtful. BTW, I do use the Kristal Ball talk myself...

NOV

2006

Kristal, I appreciate your effort, but I couldn't do it... I went back to my comment to your blog, trying to create the link in my comment to my own blog: Avoid foreclosures!! it was underlined as expected, but when I clicked on it, the msg was page could not be found.

NOV

2006

Kristal,

Not sure how I missed this one, but not sure if the following comment was said or not, but here it goes...

Best way to try to avoid foreclosure is to have a mortgage greater than the house value. Ask the Hiltons.

You know I like to think differently...

Robert ~

I suspect you mean the reverse. Have a house that is valued more than the mortgage.

Its late... ; :)

NOV

2006

Nope. Banks don't like to lose money, so since having a mortgage that would cost the bank to foreclose is better than facing foreclosure when you have a home value greater than your mortgage.

It doesn't mean that they won't foreclose on you, just that you are not going to be first in line.

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