Sadly, they are sunk in debt and can’t find work in order to support their families. Too many people are becoming victims in this cruel economic time and losing their homes. My proposal to fix this problem, is to restructure the foreclosure practices that banks are resorting to. The reason banks do it? Banks have investors they need to please; they have annual reports to publish to the public.
During the early 2000s, the housing market was promising; house prices continually were rising, so banks were loaning to almost anyone. The problem with this situation was that the people who were getting approved for mortgages weren’t at all qualified financially to buy such an expensive home. In the fall of 2008, the housing market dropped dramatically. This caused homes to drop in price, which made homeowners owe more for their home than it was worth. Many homeowners were unable or unwilling to pay, which caused banks to lose money and merge with other banks.
However, this practice left millions of families with large loans and mortgages that they could not afford when the house market fell, thus leading into delinquency and into foreclosure. This is one of the problems that has kept foreclosures in a seemingly endless cycle. Another cyclical problem is the depreciation in the prices of homes. With some houses reaching foreclosure and families just walking out or being evicted, the lack of maintenance of the fore... ... middle of paper ... ...economy. People will make smarter, more informed economic decisions and will have the skills necessary to prevent another economic crisis like our current foreclosure issue.
Presently in the United States millions of homeowners are facing the prospect of losing their homes due to bank foreclosure. An event if allowed to occur has the potential of collapsing not only our financial system, but our social fabric as a nation. The unfolding crisis has prompted the US Government to enact aggressive monetary stimulus designed to reverse the downward spiral of home values. Unfortunately this approach has failed to achieve any meaningful results and perhaps has acted more as a red herring to conceal the real issues causing this debt implosion. With billions of dollars being pumped into the banking system why then are banks still timid to continue financing home loans?
The housing market became flooded with homes for sale, because the homeowners with variable rates and interest only loans could not continue to make their payments. (Greenspan) The rise in the number of homes for sale caused further lowering of home values. Keeping in mind that the main reason for the mortgage crisis is the high number of defaulted home loans, which triggered foreclosures and sell offs. The other four contributing factors include high-risk loans, the bust in the housing market, mortgage fraud, and speculation. High-risk loans are loans that are over leveraged, where the financing is done more than the suggested values to be given.
It’s hard when a home becomes a house: left with walls, stripped of memories. It’s disheartening when a family becomes a number: left with foreclosure, stripped of dignity. In 2007, over-extended borrowers began to default on their sub-prime mortgages; mortgages that increased as more and more families chased the American dream during the housing boom. The interest rates were “teasingly” low, but more detrimentally, they were variable. When mortgage rates were readjusted, homeowners found that they could no longer pay the upped monthly payments.
As could be expected, many of these loans were foreclosed and the homes became the property of the banks. Additionally, the stock-market dropped, many companies had to lay off employees, and the unemployment rates in America grew considerably higher than usual. Employees who lost their jobs and did not quickly become reemployed are also more likely to experience home foreclosure, as they no longer c... ... middle of paper ... ...tors believe the market reached its bottom in March 2009 and is slowly rebounding since then. So now is the time that buyers will make real-estate investments, while prices are still below their usual market value. This activity will be increased if the government will lower overall income tax rates.
It has left individuals and companies facing potentially higher interest costs, or struggling to get access at all.” The credit crunch can occur for several reasons such as; “sudden increase in interest rates, direct money controls by the government or drying up of funding the capital market”, (www.thismoney.co.uk). According to the Times Online, “years of lending increased a huge debt bubble; people were borrowing ‘cheap money” and properties. The crunch began in summer 2007, where lending to low-income Americans opened a wave of financial problems. As a result banks were not lending money to consumers and one another. Furthermore, it became a worldwide phenomenon; “the way the debt was sold on to investors gave the crisis global significance.
With credit harder to get, consumers have cut back on their spending, which is very bad for the economy since around 72% of economic activity comes from consumers (Gross 2). Retail sales dropped .4% in December, which is disturbing because usually December is the biggest month for retailers. Other factors that show the economy is slipping are that inflation was at 4.1% in December and has steadily been rising (Fox 3). In 2007, food prices rose almost 5% and gas prices rose almost 30% from the year before. Unemployment rates also went up above 5% this month, which is the highest they have been in over 2 years (Fox 3-4).
“More home loans, more home buyers, more appreciation in home prices. It wasn 't long before things started to move just as the cheap money wanted them to.” (Investopedia). As this went along, the government started raising the interest rates of the home, gave turmoil to the home owners who still didn’t have enough to pay it off initially. Ownership peaked at seventy percent and which led to the forty percent decline in home prices. Many of the borrowers again couldn’t afford the high interest rates and started defaulting.