While investigating this subject and trying to figure out ways to “creatively solve the foreclosure crisis”, I began asking questions. What are the causes of these foreclosures? Where these foreclosures unavoidable? How will all this affect me? Are there opportunities for other people to benefit from all these foreclosures?
A few years ago, there were several sub-prime mortgage defaults. People lied about their income in order to get a loan. The loan brokers in many instances did not even bother to verify their income, did not require down payments, and eventually made some very bad loans that really could never be paid back. Through the greed of the loan broker, many of these loans were entered into through deceptive practices. The individuals receiving the money, through their own greed, went recklessly into debt. A typical story comes from the city of Cleveland. They have made the foreclosure problems worse and have lost millions in tax dollars by helping people buy homes they could not afford. The city provided down payment loans of up to $20,000 to mostly low-income buyers. This was through the federal Afford-A-Home program. This program did little to determine whether the people actually had the financial means to afford staying in their homes. Things remained unstable because banks where mandated to make loans to unqualified borrowers under the federal program; or face problems with regulators.
Another cause was there were speculators who wanted to “flip” houses. Many would buy a house and property using easily accessible, sub-prime loans or with favorable adjustable rate mortgages, update some of the facilities, and then sell the property for a profit. The speculator would make a profit, the banking institution would receive fees for the transactions, and the banks would also show strength by having loans on their books. This worked out well as long as the price of the property never went down. At first, property prices went up while the speculation and easy credit were available. Once reality hit and home prices stabilized and decreased, these speculators were “on the hook” and owned property and were required to pay that mortgage. Since this was speculation and they really didn’t have any intention on living in the house and didn’t have money to pay for these loans, they went into default and the banks had bad loans. They both took a big risk which didn’t work out.
Lately it seems that many of the more recent foreclosures are due to a slowing economy. There was a loss of a job which meant a loss of income to pay the mortgage.
There really is no “one-size-fits-all” type solution. There have been suggestions of tax-payer bailouts, more stringent lending standards, and refinancing some loans. This last recommendation sounds like a good idea especially for people who qualify. This would benefit the borrower and the lender. If a bank can refinance their sub-prime loans to borrowers who live in the house and...