The United States economy is in trouble and the housing market is suffering in a way we have not seen since the great depression. There are many home owners who are having trouble with their mortgage payments, and therefore they have fallen into foreclosure. Additionally, housing prices have gone down, and therefore the amount outstanding on many mortgages is greater than the value of the home underlying the mortgage. I think the goal of the banks and the US government should be to keep people in their homes. If the banks continue to foreclose at such an alarming rate they will end up owning too many houses and in trying to sell them continue to place pressure on the housing market thereby making it even harder for the economy to recover. The government should mandate a system that aligns the incentives of the homeowners and the banks. Homeowners should be able to continue making payments and can keep their houses while the economy improves.
The FDIC has put out some very sobering statistics on the state of the current housing market in the United States. Every three months 250,000 new families enter into foreclosure according to the Mortgage Bankers Association. According to a Chicago Case Study by William Apgar and Mark Duda, homes in foreclosure have become sites for crime or other neighborhood problems. Each foreclosed home can impose a cost of up to $34,000 on local government agencies due to police and fire department cleanup efforts. Costs include: unpaid water, sewage clean up, and trash removal from the homes. According to another study by the same team, one foreclosure can result in as much as a $220,000 reduction in the value of nearby homes.
This problem started with the banks and should therefore be solved ...
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... principal amounts of existing mortgages exceed the value of the underlying homes.
In general, banks own houses in the same areas, and if one house forecloses, the other houses in that area will be affected by the foreclosure. The bank is just hurting themselves by continuing to foreclose.
A good life lesson is to take a step back and look at the larger picture at hand. If the bank continues to focus on each individual house there will be a lot of loss. The economy is hurt now and things will only get worse if a solution is not found. The banks will be creating a domino effect if they continue to foreclose homes. Adjusting down existing principal amounts in exchange for valuable options on future home prices seems like the best solution. This would align the incentives of the banks and homeowners and keep the supply of houses on the market under control.
For the decades before the current housing crisis, buying homes and loaning money was a simple, but strict, affair and had had two outcomes. Either the borrower could pay back the money owed or they could not pay the money back. If the borrower could pay the money back, they could keep their house or whatever they took out the loan for. If they could not pay the money back, the lenders repossess the things that were not paid for. When this happens with a house, it is called foreclosure.
The last quarter twelve percent (12%) of American homes are in default of their loan, or in foreclosure. Add that to the previous four quarters and that is eight point seven (8.7) million homes in crisis. (Further on known as HIC's) The United States “Bail Out” helped major mortgage corporations, and their chief executive officers (CEO's), but not the families that are in, or were in these HIC's across America.
While no one likes the idea of turning people out of their homes, when you buy something you can’t afford, you have to return it. When you make a bad business decision, you have to take the consequences. Capitalism doesn’t work when there is no downside to risk – that downside is there to make sure that the system works properly. The most sensible, soundest and, ultimately, kindest solution to the debt crisis caused by the real estate bubble is foreclosure – expedient, easy, simple foreclosure. This is the best way for the housing market to grow again, which in the end will give people the opportunity to enjoy the piece of mind that comes from knowing they own a home they can afford and can really call their own.
The frequency of foreclosure in our nation today is dangerously high. The strain from the recent economic downturn has put many families and individuals in a financial chokehold preventing them from being able to make their monthly mortgage payments. Consequently, many of these people feel they’ve punched a one-way ticket to foreclosure. With all these homes being foreclosed on, we face a very real crisis.
Our nation today has become spoiled with instant gratification. Loans and the borrowing system have given the idea that patience is no longer a virtue and that saving is no longer necessary. Material wealth is increased, but so is the idea of false wealth. People have become so bloated with it; therefore they take on more than they can afford. That is what has happened with our nation’s recent wave of foreclosures. Loans have led everyone to believe that they can own a home and it has omitted the practice of saving. That is where the beginning of the solution lies. Our nation’s people need to relearn the value of patience, therefore we need to learn how to start saving again because although loans may pave a way toward homeownership, it is not valued as much compared to someone who has saved for a home.
The foreclosure crisis has been devastating. Families no longer able to afford mortgage payments are forced into bankruptcy, while banks find themselves with properties valued at less than the loan principal. Solutions proposed thus far have primarily focused on loan re-modification measures that only slightly relieve the financial burden for homeowners and frustrate lenders who are forced into less attractive loan terms. However, one solution not being discussed in congress may resolve the housing market slump while benefiting families and investors alike.
There are three common reasons that foreclosure happens as described by Lucy Lander, a writer for the National Association of Foreclosure Prevention Professionals. The first is a loss of someone that was helping to pay the mortgage. This can happen either by divorce or death. In the case of divorce, I believe banks should give them a grace period to the extent of one year to help the single woman or man temporarily until he or she can purchase a smaller, more affordable home. In the case of death, I believe banks should proceed with the same temporary grace period as with a divorce, until the wife or husband of the deceased spouse can decide whether to move into a smaller and more affordable home, or if another family member can help pay the mortgage. I believe banks should give these temporary grace plans because we would literally be running American citizens...
As of December 29, 2009, the website Foreclosure.com reported that over 2.2 million homes in the continental USA are in some form of foreclosure, 486,323 are in pre-foreclosure and 465,490 have already been foreclosed. Over seven hundred thousand have tax liens against them and 87, 389 have been sold in Sheriff sales. Along with the homeowners, mortgage companies and banks have suffered tremendous financial loss. However, the homeowners lost so much more; they not only lost the roof over their heads, but memories, their self-esteem and their piece of the American dream.
It’s hard when a home becomes a house: left with walls, stripped of memories. It’s disheartening when a family becomes a number: left with foreclosure, stripped of dignity. In 2007, over-extended borrowers began to default on their sub-prime mortgages; mortgages that increased as more and more families chased the American dream during the housing boom. The interest rates were “teasingly” low, but more detrimentally, they were variable. When mortgage rates were readjusted, homeowners found that they could no longer pay the upped monthly payments. Such sucked them in to the dizzying downward spin of heightened debt and negative equity. Such sucked them into the foreclosure crisis.
“One out of every two hundred homes will be foreclosed every month, making 205,000 new families enter into foreclosure,” Mortgage Bankers Association. The housing industry in the United States is undergoing an unfortunate crisis. There are way too many homes being foreclosed, which cause a ripple of problems.
To really be able to fix the housing market, we have to look at how it got so bad to begin with. Banks were giving loans out to people who couldn’t afford to repay them. That was, what I see, as the most detrimental situation regarding the housing market. Are the banks only to blame? Absolutely not. Those people who took those loans with little thought of repercussions also caused this mess. We shouldn’t be borrowing money so loosely and the banks should not have made it so easy.
A review of the literature reveals a common theme among experts in this field of study. The recurring themes present is the current literature include the financial crisis of 2008 and foreclosure impacts. Foreclosure impacts include the effects of crime, housing sales, property valuation, property abandonment, neighborhood destabilization, and shifts in tax revenue. The sources of the literature reviewed were scholarly journals, peer-reviewed journals and governmental websites. The foreclosure impacts will be presented as subtopics within the body of this paper.