The Rocky Mountain News has this update on Colorado. "Thousands of Denver homeowners gambled on adjustable rate mortgage loans three years ago. Now those bets are coming up short. These homeowners are facing the hard truth that their ARM mortgage payments are going up several hundred dollars more each month."

"'In a sense, they were really playing Russian roulette,' said (broker) Ed Jalowsky in Denver. 'Russian roulette is a form of gambling, and that's what they were doing, they were gambling.'"

"The Denver area may be hit particularly hard because homeowners in Colorado on average have little equity in their homes. In Colorado, 28.5 percent of homeowners have 5 percent or less equity in their homes, and 47 percent have 15 percent or less equity."

"This year is on track to eclipse 2005 as the second worst ever for foreclosures. Last year, more than 14,000 Denver-area homeowners defaulted on mortgages. Increasingly, people who locked in three-year ARMs with rates in the 4 percent range are finding loan rates rising by 50 percent or more."

"Next, the downward spiral begins: They can't afford the higher payment, they can't sell their homes for a profit, or they can't refinance because they have little or no equity in their houses or they're precluded from refinancing because of pre-payment penalties.'

"'People were still riding the euphoria of the late '90s (three years ago), when they thought housing prices were just going to keep going up quickly.' So they locked in adjustable rate mortgages that had fixed below-market rates for three, five and seven years, Jalowsky said. Jalowsky estimates that 75 percent to 80 percent of homeowners defaulting on their mortgages in the Denver area took out ARMs in recent years."

"Jalowsky is listing a home for one client who is going to see his monthly mortgage payment rise by $1,000 on June 1, when his ARM adjusts."

"(Realtor) Brian Bartlett agrees. 'It is absolutely mortgage roulette,' Bartlett said. '"Either buyers were not informed by the mortgage broker or all they chose to hear was the answer to the following question: What is my initial monthly payment? When you combine ARMs, 100 percent financing, negative amortization, seller-paid closing costs, rising rates, falling prices, rising inventory and a continuing sluggish Denver economy, you have a recipe for 1987 to 1990 revisited.'"

"Even worse, thousands of homeowners chose so-called 'option ARMs.' 'The option ARM is the temptress,' said (mortgage broker) Pete Lansing. He wasn't a big fan of option ARMs two years ago, when they were popular, and he lost business to other companies that pushed them. Now, he said, he is getting phone calls from people who want to refinance out of option ARMs into fixed-rate mortgages."

"'Usually, they're pretty short conversations, because they can't do it because of stiff pre-payment penalties,' Lansing said. Now, people are wondering why they didn't lock in fixed rates at 40-year lows around 5.5 percent. 'One of the issues I hear over and over again from the people is that they now feel really stupid,' Lansing said."

"Dan Jester, a spokesman for Moody's, said the Denver area is in decent shape because it didn't see the huge run-up in prices that other areas have seen, so it's unlikely to experience the big crashes that could occur on the coasts. 'If you were Orange County, (Calif.), I'd be a lot more concerned,' Jester said."

"Lansing said it is too harsh to say homeowners who took out risky ARMs several years ago were playing Russian roulette. Rather, he said many of the borrowers had been lulled by years of low or falling rates and probably didn't fully understand the risks. 'Life happens,' Lansing said. 'Now they are paying the piper.'"