A House Unsold, the Dream Dims

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In pursuing the American dream, Hector Garcia figured he was doing everything right. A hardworking welder with two jobs and a new family, he bought his first house 4 1/2 years ago in Denver's Montbello neighborhood.

Montbello's older, brick ranch-style homes were considered a good buy. So Garcia took out a 30-year, fixed-rate mortgage at 6.5 percent interest, bought a three-bedroom home for $207,000, and began fixing it up.

With interest rates falling and the nation's housing boom in full swing, growing numbers of fellow Latinos bought into the historically African-American district. Many took advantage of new adjustable-rate loans that got them in with no money down and low initial payments. "They thought this was their dream," Denver City Council President Michael Hancock says.

But two years ago, interest rates reversed course, sales slowed, and developers began discounting the homes they'd built nearby. Buyers with adjustable-rate loans saw their monthly payments rise. Some fell behind and were forced to sell or face foreclosure.

The story is similar in many not-quite-up-and-coming neighborhoods around the country. Mortgage delinquency rates have steadily climbed since 2005, exacerbated by a growing array of exotic loans and loose lending practices. That's especially true in the subprime market, where many first-time buyers squeaked in with no downpayment. That gave them little reason to stick it out when they fell behind.

"Foreclosures spiked last year, and now we're hitting a very high rate," says Celia Chen, housing economist at Moody's Economy.com, which expects the rate of foreclosures to increase by nearly 20 percent this year to more than 1 in about 200 homes. And if things get worse, "the [rise in] foreclosures is going to put some downward pressure on prices, which is problematic in some neighborhoods."

The wall. The worst result is the sort of vicious cycle of "for sale" signs, foreclosures, then more "for sale" signs that is all but devastating Montbello. Bank-owned properties now represent more than 80 percent of all homes on the market there, putting even seemingly stable homeowners like Garcia up against a financial wall.

"I just can't take it anymore," he says of his street's overgrown yards, abandoned houses, and declining property values. "I put so much into this house and this community, but I don't have no equity."

With more than 2,500 square feet, new kitchen cabinets, tile, and a recently finished basement apartment, Garcia's house two years ago "would have gone for $210,000, maybe more," says David Cabrera, the real-estate agent whom Garcia hired last fall to sell the home, now priced at $195,500. "But nobody's buying now with all the foreclosures."

The situation is hurting longtime residents, too, who have counted on home equity for their futures. "For a lot of older folks, this is their retirement," says the City Council's Hancock.

http://www.usnews.com/usnews/biztech/artic...oreclosures.htm

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Many took advantage of new adjustable-rate loans that got them in with no money down and low initial payments.

Mortgage delinquency rates have steadily climbed since 2005, exacerbated by a growing array of exotic loans and loose lending practices. That's especially true in the subprime market, where many first-time buyers squeaked in with no downpayment.

That explains a lot. If it's too good to be true...it probably is.

[Mr. Big Dog 10,747]

Many took advantage of new adjustable-rate loans that got them in with no money down and low initial payments.

Mortgage delinquency rates have steadily climbed since 2005, exacerbated by a growing array of exotic loans and loose lending practices. That's especially true in the subprime market, where many first-time buyers squeaked in with no downpayment.

That explains a lot. If it's too good to be true...it probably is.

Exactly. Some of these loans let you pay less than the interest for the first couple of years. So, you pay a few hundred bucks a month for a 300K loan; but your loan keeps getting bigger as the unpaid interest is tacked onto your principal. Once the "honeymoon" with the lender is over, people start scrambling as they are faced with the actual cost of their mortgage that they can't afford - never could afford to begin with.