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.
Thousands of homes are currently facing foreclosure for a multitude of reasons, but some of the causes of these foreclosures could have been prevented. People took their credit cards and lines of credit on their houses for granted, and never attempted to pay them off. These loans and credit card bills require only a very small percent of the principle be paid back each month, and people simply pay the minimum and keep themselves in debt. Because people borrowed money against the value of their homes and used this money to buy more homes, they invested everything they had in the housing market. When the housing market began to fail, a huge foreclosure crisis arose.
Their foreclosures are the most unexpected. These homeowners were not looking to make a profit and took out prime mortgages. They have played by the rules and worked in order to have a home. In addition to reducing foreclosures, one of my goals in solving the foreclosure crisis is to keep these homeowners housed. Though the two goals seem similar, the policies I want to see set in motion will clarify the difference.
It is usually by a technicality, a loss of annual income such as loosing a job, or an accident. If a family of three has one source of income, usually the father, and the father is hurt in some way, car accident, cancer, or any other event, that family no longer has that normal income coming in. Now they have bills unpaid and the person who usually brought in the homes money still can not work. These are unfortunate cases but they do happen. That is why it is important that something is done to help those who find they are victims to the foreclosure problem.
First, property values have declined; so many homeowners are left paying a mortgage on property that is worth less than what is owed. Sometimes, much less. Equity built up for children’s college or retirement has been eaten away. The relief period for those with modified mortgages is not long enough resulting in at least half in arrears again after just six months. Another problem we find within the crisis is government programs failing to live up to their promises.
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.
Solving the foreclosure crisis will not be an easy task. I believe there is no quick fix or sure solution to fix this far-reaching crisis. There are however, steps that every individual involved in the foreclosure crisis can take towards improving the situation. People that the foreclosure crisis does not directly affect should still rethink their lifestyles as well, so that the crisis does not continue to grow. The bail outs given to the banks were a candid approach to preventing the banks from failing, but there were still thousands of Americans failing as well.
Not only are people becoming unable to afford payments on their mortgages but also they are unable to get themselves any help because as opposed to before when they could have refinanced their homes, their homes are now worth less than the loans that they actually need to pay off. So now people’s problems are simply snowballing until they are buried by the result. People have become so desperate for help that foreclosure has become an increasing problem that it is not only affecting the economy but also society. At any time during the day one could see several commercials offering people financial help and advice on how to solve their foreclosure problems. But do these companies actually advertise something that they can deliver?
The “Foreclosure Crisis” cannot be solved it can only be slowed by programs and policies offered as management tools to curtail the volume of home owners going into foreclosure proceedings. This “Foreclosure Crisis” should be addressed from the perspective of both the home buyer/owner and the lender. Both sides of this coin are required to create a balance of suggestions, policies and modifications towards the lending practices of mortgage companies and the reiteration of the home buyer’s positive attitude toward long term investments. Without the initiation of managements tools from the perspective of both groups, the consequences of either sides unchecked actions could result in a massive number of bad loans. The massive number of bad loans could create the catalyst for a slow domino effect throughout our economy much worse than we see today.
We can all agree that foreclosures in any neighborhood are detrimental to the community as a whole as they wreak havoc on property value and create funding problems for the parks and school systems of these neighborhoods. While buyers of these foreclosed homes get these homes at low prices, everyone else involved gets hurt. The lenders of the mortgages are forced to receive less than the principal value of the loan, the borrowers are forced out of their homes and all prior payments towards the mortgage are voided, and the community feels the ripple effects. From what transpired in the last year and a half, we can now agree that some of the problems that led to the housing crisis were created from questionable lending practices to people who could not afford to buy a house. These subprime mortgages were then repackaged in to financial instruments such as CDOs and sold by the investment banks to investors who thought that the risks that they were taking on were less than the actual level of risk of these CDOs.