When the Bubble Burst

The foreclosure crisis is a serious problem. Recessions are horrible for society to endure, but when people are losing their homes all around, the confidence in recovery needed to fuel the economy is eroded away until it seems almost hopeless to end the economic slum. Unfortunately there isn’t a simple solution to the foreclosure problem. The best way to solve any problem is to know what causes it. Foreclosure is the result of mortgage loans being given irresponsibly to people that can’t afford them.

Yes it is the most important or should I say the most expensive but we have other bills and needs too. So if we put all our money in one pot we will eventually lose that pot and we then have nothing and that is when we go into foreclosure. So we must get a handle on the lending before we are able to attack the foreclosures. The banks and lenders are not all to blame we share some of that blame for accepting the loans that we could not afford. But it is very hard to say “I can’t afford this house” after the banks or lenders have said that you can.

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?

This large number of defaulted and unpaid loans sucked up tons of capital and made many of the real estate assets that the investment banks held toxic. Schiff’s book describes this unfortunate chain of events as the “Hut Glut”. They created a syst... ... middle of paper ... ... deemed “too big to fail” because it wouldn’t truly send the economy in a free fall if went under because of how much it was involved in. Also, another huge blow was dealt when credit froze. Credit has to power to both build and destroy an economy.

Unfortunately, the Countrywide Financial case was not an isolated case. Many top name mortgage companies have been guilty of unethical behavior. Just as the American housing market was starting to recover from its worst battering since the Great Depression, a new scandal, an epidemic of flawed or fraudulent mortgage documents, threatens to send not just the housing market but the entire economy back into a tailspin (Nation, 2010). Countrywide Financial got greedy and started to make questionable and unethical decisions to make money. Countrywide Financial preyed on consumers that could not qualify for conventional loans and those that could to make more money with subprime loans.

In some cases they would lend money even if the borrower had terrible credit. This has caused corporations like, Country Wide Home Loans, to be bought by other companies. A rather simple solution to this would be to change how “Alt-A” loans are given because these appear to be defaulted on the most. This is partly due to the struggling economy and companies having to cut back and let people go. After this the borrower’s could either, not afford to pay the loan back or felt that they were wasting money by paying it.

Homeowners are faced with difficult financial decisions. Impulse buying and extravagant purchases that were made because it was affordable at the moment are forcing home owners to become statistics of the declining economy. Among the many problems they face, they are also being forced into foreclosure and losing their homes. From the beginning consumers and the banks overspent and overstretched their budgets. Consumers gave into the game, and the financial institutions gave into the greed by not ensuring that their customers were 100% qualified.

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.

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.

This controversy is largely due to the fact that no one can determine for certain, a single factor that led to the housing market meltdown. By carefully analyzing the factors that potentially caused the foreclosure crisis, one can better determine possible solutions to it. Perhaps the most recognized cause of the foreclosure is greed on the part of nearly everyone involved in the mortgage and real estate industries. Homes were all too often over valued by appraisers, and then realtors listed them at these outrageous prices. Loans were also offered at higher values by loan officers, so that they could increase their commissions.