Simply, the best preventive measure to the foreclosure crisis would have been to not to overextend yourself. The credit phenomenon, of buy now and pay later is one of the major culprits to blame for the current situation. This is a major reason why the country is in such trouble right now. With growing unemployment, many Americans are unable to pay off their current debts. In addition there is no incentive for many homeowners to pay off a mortgage that is greater than the current market value of their home.
Consumers gave into the game, and the financial institutions gave into the greed by not ensuring that their customers were 100% qualified. Some consumers do not have the income they originally had to keep their homes, and too often had to choose between everyday necessities. All home buyers first time or the twentieth time need to be counseled regarding what they want versus what they can afford when researching loans or mortgages. Most buyers are uneducated regarding their debt to income ratio and no one ever thinks twice about losing their income due to unemployment. Due to the lenders greed, that itch to make a buck, it appeared that anyone and everyone were being approved for a mortgage regardless of their income.
I researched and came up with the hypothesis that no matter how much a person cuts back and saves on their everyday living, if they still go out and buy a home to much out of the budget they would still not be able to save there homes from foreclosure. Simply because this problem base on the marketing and greed on Wall street. Foreclosure has been around since the late 80's and also in the 90's. Its just now the media discover the problem and put it in the public. It all started when Wall Street discover a mainstream in money by giving sub-prime loans to people that were out of their ranges and were more expensive then there credit score.
Based on mortgage interest rates, many first time home buyers do not realize the impact that the monthly payments will have on their net income. Many times borrowers are not told of all of the other factors that enter into a mortgage payment such as insurance, taxes, etc. Taking of this into consideration would make many realize that the payments would escalate beyond their means. This would also help the borrower when setting up their monthly budget. Another suggestion would be to encourage cur... ... middle of paper ... ...wing people to live beyond their means.
If we do not fix what we have done in our past, now, we can never change what we will do in our future. This makes sense at any level of change and development when you take a deeper reasonable look at problems. Recently, I have heard that it is the Realtor’s fault for the soaring prices of homes for sale in many communities. I have also heard that it is the banks fault for lending out more mortgages than they are allowed to, therefore causing an eruption of foreclosed homes. Another great fault was caused by many people who went out and purchased homes when they did not have the actual funds to.
Loaning substantial amounts of money to people who have no way of evidencing that they are capable of paying off loans is a reckless practice. However, if renters can show that they have paid their rent on time every month in addition to showing the ability to hold a job for a long period of time, the number of foreclosures will decline. I believe an increase in the value of the United States Dollar is critical to the housing market. When the value of the Dollar decreases in value, people are forced to pay more money in order to acquire goods and services. Consequently, the price of homes increases, limiting the base of prospective homebuyers.
With our economy in a downslide and increasing numbers of foreclosures worsening our economic problems, it is obvious that there needs to be some intervention in order to prevent more foreclosures. Home ownership has always been a key portion of the American economy and an integral part of the American dream. We cannot allow the current crisis to let more people lose their homes and become disenchanted about home buying in the future. Not only will the defaults on mortgages further destabilize the American economy now, but they will also cause problems in the years to come as less people decide to venture into home ownership again. Therefore, the obvious solution to these ill repercussions is by keeping people in the homes they currently own and helping prevent foreclosures.
People changed their spending habits and everyone wanted to own a house. Appraisers at the time overvalued many houses, agents from financial institutions provided high value loans in order to increase the commission cost and many homeowners lied on application forms in order to qualify for large mortgages they could not repay for a very long time. Banks at the time gave out very huge mortgages with low interest rates basing the suitability of an applicant by the ability to pay the artificially low interest rates and not the real value based on market conditions. Concerns over oil and gas also resulted in the financial difficulties of many homeowners thus leading to the foreclosure crisis. The rise in need of... ... middle of paper ... ... in confidence and consumer spending hence allowing loan repayments.
With billions of dollars being pumped into the banking system why then are banks still timid to continue financing home loans? 1. They are concerned that home prices will continue to fall, adding further risk to their bottom line. 2. Due to the immense derivative (OTC- Over the Counter) losses banks are simply faced with using taxpayer bailout money to stay afloat and continue manufacturing these exotic instruments that Warren Buffett has labeled as “Weapons of Mass Financial Destruction” .
However, many financial institutions recycled unmorally behaviors to their clients and investors for their own greed which led the house market spurt. As government leaders portrayed the promise for all Americans to have prosperity, home ownership became a reality for the most low- middle income people. Many low-income borrowers were attracted to the idea of becoming a first time homeowner. After the internet bubble burst in 2001, a lot of Americans felt that buying a house was a safer investment than invested in the stock market. Due to poor saving habits, low income homeowner was unable to pay the typical twenty percent down payments on a house.