This month I wanted to address a question I get a lot lately. Namely, “Why does Colorado have one of the highest foreclosure rates in the country?” In my mind the answer is that Colorado was a perfect storm waiting to happen. Up until this January, Colorado was one of only 2 states left in the entire country that did not require mortgage loan officers to be licensed. The result was that you had loan officers (literally in many cases) serving time in a Federal penitentiary, and still originate mortgage loans in the state of Colorado. Colorado now requires that a loan officer must have at least a background check for felonies and be registered with the state. While there is still no educational requirement, this measure should at least keep the worst-of-the-worst from doing business here. However, in my opinion, that was just one of the factors. Every state has its’ share of unscrupulous lenders and predatory horror stories to tell. But the truth is that no one loan officer could do much damage unless he had a lot of help. So let’s take a closer look.

The notoriety regarding Colorado has an entire state is a bit overblown. The reality is that there are a few counties and specific locations with tremendous amounts of foreclosures that have skewed the average for the whole state in general. Even though Jefferson County set a numerical record in 2006, when you look at it as a percentage of the population now living in Jefferson County, we have nowhere near the record levels we saw in the late 1980’s. Our overall economy is actually quite healthy here in Colorado, as a function of a less than 5% unemployment rate. That is nothing like what happened in the late 80’s either, when we lost almost the whole oil sector of our economy. Unemployment was rampant and being unable to make house payments was much more understandable then.

A large part of the problem now is the result of outright fraud and/or very deceptive practices. The unscrupulous loan officer needs an equally fraudulent appraiser to work with. But even those two characters need an easily duped population of consumers to work with, and a few Realtors who are willing to look the other way. Throw in the occasional builder with more in inventory than he can pay for, and you start to wonder why this all didn’t happen any sooner. The consumers in question were disproportionately illegal immigrants, legal resident aliens, foreign speaking nationals (groups with language barriers to begin with in other words) or the most ignorant and uneducated of first time home buyers. The product of choice was the “Option Arm” which I have already ranted about in many previous articles. That is the one common thread with the late 80’s actually. That product is hard for a well trained accountant to figure out, so what chance would the under educated or language challenged consumer have.

Lastly, we have a very under trained, under funded and/or unmotivated law enforcement community. As you know from previous articles, I have had my own personal experience of trying to get a serial con man prosecuted. Even with a complete file and all the evidence any DA would need for a conviction, the fact is law enforcement agents just aren’t interested. It doesn’t generate revenue for their department, but instead would cost some serious time, effort and money to prosecute. Unfortunately this attitude toward “white collar” crime does not appear poised to change anytime soon. So in the end, this drama will simply cycle away. A minute fraction of the perpetrators will be prosecuted for show, and lawmakers will draft a few more redundant laws that won’t be enforced. The newspapers will eventually find something else to over hype in their headlines as well. In the meantime, take solace in the fact that many experts rank Denver as one of the safest real estate markets in the country, with respect to home values. Bottom line: the sky is not falling!

For expert advice on any aspect of home finance, call the professional. Dan Smith can be reached at 303-674-0201, or visit him on the web at www.ColoradoHomeLoans.com today!