In America the foreclosure rate is at an all time high. It seems in every neighborhood you visit you see houses going into foreclosure. The American family has been lead to believe that they could buy homes with little or no down payment, and that the banks could continue to offer variable (adjustable) rates of three to four percent. This was madness on the part of lenders to lend to “uneducated consumers” who may not have understood the ramifications of rate increases on their ability to make their monthly mortgage payments. The American dream of owning a home is beginning to elude many individuals, and it is questionable that all Americans should own a home.
There may be many reasons why America has found herself in the current economic crisis, but most economists will agree on the factors that led up to the housing crisis. Just a few years ago the industry was booming and lenders were willing to give a loan to just about any person who was willing to buy regardless of their qualifications. Interest rates were very low, and the number of willing buyers was high. As Sherman stated,” the housing bubble was largely created through excessive monetary stimulus in the wake of 9/11, as Fed Chairman Alan Greenspan held "real" interest rates at or below 0% for nearly four years (2008). This led many people to buy more expensive homes than they could actually afford.
Many immigrants move to America in hopes of achieving the American dream. Reluctance to grant citizenship to those who work hard in our country make it difficult for in these individuals to gain wealth. In the twentieth century the economy was flourishing, making it easier for people to get jobs; nowadays, in a recession, it is hard to find a job that pays well without a higher education. All of these factors make it harder for one to achieve the American Dream. The richest people of America continuously receive the largest tax breaks.
The housing boom of the 1990s and low interest mortgage loans lead to droves of Americans purchasing homes which were out of their actual price range. Creative financing with variable interest rates and interest-only loans was the name of the game at financial institutions across the country. However, as interest rates began to climb, homeowners found it difficult, if not impossible, to meet their loan payment obligations. Delinquent payments were not tolerated by the banks and homes began to be foreclosed. Banks had no idea that the wave of home foreclosures would soon turn into a tsunami of homes in their virtual warehouse.
Housing values across the nation grew more than fifty percent and many new homes were being built. Interest rates can be damaging to housing prices because, generally, they are highly leveraged on debt. For example, a 20% down payment on a $100,000 home leaves $80,000 of leveraged debt. Forty percent of all homes purchases were for investment by 2005, with the intention to resell only after a few years. The economy was booming.
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.
Although the United States financial sector was one of the causes of Great recession, so was the culture. We grew up in a society that relies on a credit. People get loans to pay for college education, buy cars and houses. Most of the people are accustomed to depend on a credit and spend money that they have not yet earned. The housing boom has caused the house prices to rise continuously up to the point of Great Recession.
With many people seeking out higher education, there is a large demand for more affordable schooling. Many students seeking a college education cannot afford to pay out of pocket, so they turn to private student loans to help cover the cost of tuition. Now because of this per The Economist:” the total student debt in the United States has now exceeded 1.2 trillion dollars”. President Barack Obama stated as follows, “Over the past three decades, the average tuition at a public four-year college has more than tripled, while a typical family’s income has barely budged.” Solutions have been proposed stating why education should be made more affordable and in some cases, free. Although the bulk of these options have some basic flaws, they are the
The numbers are staggering in either category, and despite enormous gaps in economic class, it would seem the crisis knows no demographic. Many Americans own homes worth less than their respective mortgages. In addition to this, it seems that many of the higher-growth regions across the country are having the biggest problems. The previous housing 'boom' is perhaps responsible for much of the current situation; but it was not an inevitable occurence. The American government, past and present, has made many a promise to clean up the housing market, presumably with the best of intentions.
A home is a safe haven and an essential part of any life. As we see hundreds of thousands of our neighbors and friends becoming unable to endure the challenge of making their mortgage payment, it becomes our duty to seek out a solution. In my opinion, almost everything that contributed to the foreclosure crisis originated from American banks in some way. Many appraisers, which were hired by banks, valued houses for exceptionally more than they were actually worth. This caused the buyer to have to take out a much more significant loan from the bank.