Debt Consolidation & Colorado Credit Counseling

What caused economic crisis in Colorado?

At present home owners are certainly facing hard times and are in a situation of not being able to meet their monthly mortgage payments. The situation of Colorado is still concerning as it ranks 19th among the nations foreclosures filling. The economists worry that the state unemployment will probably worsen the foreclosure rate.

The main cause of economic cause is GREED. This is because over the years the mortgage lenders did not hesitate to lend money to people even with bad credit as there is nothing to lose in the end. Lending to bad credit people, lenders managed to charge higher interest rate to cover the risk associated and make more money on the sub prime lending. If the borrowers default on mortgage payments, the lender could easily mange to size the underlying property and up back on the market for sale. Due to housing market boom present those days it was very easy to unload the properties and recover the amount. On the other hand they were able to pass the risk associated with lending to mortgage insurer or package these loans as mortgage backed securities.

But what went wrong that leads here? The strategy adopted by the lenders was great and beneficial when the houses were selling like hot cakes and continue price hike every month. Lenders continue to lend more money as there is higher demand and which leads to higher home values. Higher home values in the market give the lender a protection towards foreclosure in case of mortgage defaults that made the lenders to lend more number of mortgages.

Unfortunately, everything got slammed when the adjustable rate mortgages got adjusted. With adjusted rate mortgages many of the home owners could come up with mortgage payments monthly. As number of mortgage defaults increases, lenders caught with liquidity issue and rely on foreclosure to sell and recover the mortgage to run their business of lending. As more number of foreclosures hit the market than they could sell home price started to decline with huge supply into the market. With this mortgage backed securities become more risky causing the mortgage lending giants like Lehman Brothers and insurers like AIG to file bankruptcy.

With liquidity crisis hit the mortgage industry, government came up with bailout package which allows the lenders to lend money to home owner who are able to buy home for first time and at the same time fed has passed first time buyer tax credit to boost housing industry. But after all this efforts could not manage to increase the consumer confidence there by economic growth.

US government came up with different packages to boost bank because banks play a crucial role in growth of economy as they lend money to business, which are required to perform business activities. This is important because banks have cut off the credit available to borrowers as they don’t have enough money in to system and can’t afford to take risk further.