Solving the Foreclosure Crisis

We as a nation must find an alternative to home foreclosure that offers hope for homeowners who feel it is impossible to regain control over their mortgage payments. Being from an area of the country hit very hard by the automobile industry’s downfall I know many people who are in need of immediate help, as they are in the process of having their mortgages foreclosed. Several homeowners took advantage of the easy to obtain credit experienced in America during the late 1990s and early 2000s, and now find themselves “buried in their mortgage”. They borrowed amounts above their home’s value, and now that these values have dropped tremendously so they cannot even come close to selling their homes for what they owe. Lending companies are partly responsible for the troubled real estate market we are now experiencing, as they should have never allowed anyone to borrow more than 90% of a homes value.

In some areas of the country, the homeowners’ are as much as 65% upside down. The Mortgage Bankers Association reports that there will be a significant increase in prime-fixed rate mortgage defaults, as the economy struggles with increased number of job losses expected. This does not even address the looming commercial property loans that are delinquent. Although the mortgage crisis seems to have started with the “sub-prime” loans and the loose lending practices, it has had a much deeper impact on the over-all US and world economy. As people lose their jobs or experience a slowdown in business and decrease in their household incomes, it is harder to meet their financial obligations.

Everyone knows that when it comes to buying a house for the first time that it’s a major accomplishment for him or her, but some people in the nation do not seem to consider their salary when it comes to buying a home. Many people may say they’ve found the perfect home for them but is it really in their budget? During this recession, it’s most likely that the house is out of their price range, but they still purchase the house anyways. With the house being too expensive, the new client may struggle to pay the rent each month. They may have to cut back on some of their leisure expenses just to pay the bills.

As the housing market fell, the banks no longer offered the refinancing that these borrowers counted on, and other economic issues caused many of them to be on even less firm footing then when they got their mortgages. Foreclosing on homes that are unsellable in a slow market helps no one. Foreclosing on a home is devastating to the owners. They not only loose their home, but their families are uprooted. They are faced with nerve-racking and disconcerting circumstances for everyone in the family, including and especially the children.

When the housing market crashed subsequently the stock market crashed soon after it. As a result of both the real-estate and the stock market crash the banks opted out to tighten up their belts by increasing the criteria to apply for credit and loans. For most Americans who have or had middle class to poor income status it is almost if not impossible to apply for and receive credit now from a reputable bank institution. The foreclosure rate is exceptionally important to me because my family and I were considering buying a home in a year and we almost considered purchasing a house on the flex or adjustable rate. The thought of the possibilities of losing a house would devastate us because we have a young child and my husband and I just started our lives together.

When thinking of a solution to the foreclosure crisis our country now faces, we have to analyze how this all started. People cannot afford their mortgages, and since their house is worth less than they are paying for it, now that the housing market has plummeted, why not just let the bank take their house rather than paying? The smart economic decision their by the homeowner would be to let the bank foreclose on their house and look to buy another for much cheaper. That is the problem. Due to the severe decline in housing prices, people who bought their house about five years ago are paying more than the house is worth.

Headlines scream statistics about Americans losing their homes to foreclosure. Entire communities are plagued by abandoned homes, crime, and vandalism. The people that used to occupy the homes, good, taxpaying citizens are now living wherever they can find room. Meanwhile, the cities, towns, and states that used to receive this revenue are falling short of funds to support the other facet of this crisis, the unemployed millions trying to find jobs in this downward cycle of financial doom. As a mortgage underwriter since 1999, my career started with the upsurge of available mortgages for subprime and Alt A consumers.

Therefore, the obvious solution to these ill repercussions is by keeping people in the homes they currently own and helping prevent foreclosures. My proposal to make this a reality involves three key parties: economically-troubled homeowners, banks, and the federal government. As we all know, the Bush and Obama administrations have recently infused hundreds of billions of dollars into the banking system in order to help troubled banks stay afloat during this hard economic time. The purpose of this influx of money was largely required because banks had lost so much money due to mortgage defaults that they were left with too many foreclosed houses and too few payments on loans. As a result, lending trickled down to a slow stream; consumers now can't get the money they need in order to buy new homes because banks are afraid of more defaults.

This last group of consumers and many homeowners that were responsible and are in need of help due to unemployment should be the focus of much needed solutions as part of the real-estate recovery. According to many research articles and papers written on the United States’ economic crisis, there are various causes that affected the financial system; one is the greed of the loan institutions that made a lot of money off bad mortgages. Mortgage brokers determine which people were granted loans, but they were not made accountable because they passed the bad debt to the consumers in “mortgage backed assets” and then took commissions for approving poor loans (Jarvis, 2009). The responsibilities were sold to the trusting investors who were promised a good return. However, homeowners couldn’t afford the explosive debt incurred, which lead to catastrophe domino affect of many people losing their homes (Jarvis, 2009).

In the process, consumer spending has suffered mightily and deepened the recession as Americans have seen the value of their most important assets, their homes, are falling in value. There were a lot of different factors that went into the development of the problem. There was buying a house that cost more than the people could afford, and there was taking on a mortgage payment that had monthly payments that were really high. There was the problem, too, of people who had no savings after they bought their house, so if anyone got sick or lost a job they couldn’t make their payments. Finally, experts are not sure of the solution to the foreclosure problem.