Denver, CO: Beware of Payday Lenders and Foreclosure Traps

By Kelly Richardson
Local Lender Columnist
Mar 2, 2007
The Denver real estate market is no place for the faint of heart. Soaring fees, restrictive terms, and payday lenders all too eager to lend a hand have spawned record foreclosures in this once booming economy. It's no surprise that special interest groups and government committees are reigning in on mortgage lenders.

Like the rest of the country, Denver mortgage fraud is leaving its mark. From payday loans to short-term mortgage arrangements, some lenders are showing Denver homeowners no mercy. According to David Berenbaum, executive vice president of the National Community Reinvestment Coalition, "We are very concerned that we are going to see a foreclosure rate the likes of which we have never seen before."

So, who are the most prominent victims? Young people, U.S. soldiers and others with limited financial savvy. These are the residents most likely to buy into short-term mortgage deals with very little wriggle room for unforeseen financial crises.

Payday Lenders: Traps and Stats

• Payday Lenders. The payday loan is a financial arrangement that allows borrowers to write a check for the loan amount, plus interest, and postdate it to their next payday. Average amount: $300. Average interest rate: 345%. Who’s saving who?
• Military Prey. Predatory lenders prey upon uniformed men and women strapped for cash. It's no surprise that payday loan services congregate around military bases.
• By the Numbers. All in all, Denver payday lenders lend an average of $500 million annually, earning a 345% interest rate to be paid on an 18-day schedule.

Lenders and Foreclosures

Record foreclosures are another peril of the Denver real estate market, driven by lenders pushing short-term mortgage loans.

• Lender's Games. Foreclosures rise when lenders pressure appraisers to overvalue homes. Meanwhile, interest-only and other exotic loans give homeowners little or no equity.
• Calling in the Cavalry. The state launched a mortgage help hotline in October 2006 in response to surging foreclosures in Colorado. The service received more than 1,300 calls within the first 24 hours.

So what should you do if you want to buy in Denver? Protect yourself from mortgage traps by carefully examining loan terms, evaluating your current financial situation, and allowing room for the unexpected. A number of consumer agencies offer borrowing tips to reduce your chances of falling prey.

Sources
Foreclosure hotline hums; 3,000 calls in first 2 weeks
More home loans in jeopardy
Payday loans gaining critics

About the Author
Kelly Richardson has over 15 years of creative and technical writing experience. He teaches secondary Honors-level English and writes ad copy for a variety of clients in specialized industries such as medicine and technology. Kelly holds Undergraduate and Graduate degrees in English and Education from Georgia State University. He is currently pursuing a Doctorate in Educational Policy & Leadership from Berne University & International Graduate School.