How to Solve the Foreclosure Crisis
Imagine a young couple was married and bought a house together. They were happy they made an investment together that they would never regret. A few years later, the company the husband worked for suffered critically by the recession and he was one of the hundreds of people who got their job cut. They now have two babies to feed and have to choose between food and the mortgage. They soon began to miss their monthly payments. They waited until things became unbearable to negotiate the loan or an extension to repay the bank but their efforts failed. Another family had a home, they had an adjustable rate mortgage, the two year introductory rate is almost expired and the payments are nearly impossible for the family to pay. The family tried to get out by selling the home but the balance is now worth more than the home and with no other options in sight, the foreclosure sign hung in front of her home.
These stories are now common in America. Many Americans face a huge crisis that they never expected. Many put the blame on the banks while others put it on the borrowers because they should have “done their homework” and research in detail the loan they were about to commit to. However based on extensive research, I concluded that there are several things that contributed to this foreclosure process, thus making several ways to resolve this growing problem.
In order to fix the problem, it’s imperative to know what caused the crisis, not only to prevent it from happening again but also to use the most effective way or ways to address the problem at hand so that it will help the home owner in the end.
There are five reoccurring reason of foreclosure (shown left). The most prominent reason of foreclosure is negative equity. Although twelve percent of loans have a negative equity, forty-seven of those homes face foreclosure. Negative equity occurs when the balance is worth more than the home. This happens when the payment is less than the interest, thus the interest increases more rapidly therefore the interest itself is worth more than the initial loan.
The second most popular reason of foreclosure is unemployment. The recession took a heavy toll on foreclosure crisis. The constant layoffs and inefficient unemployment checks cannot cover the needs of the average American family. Many people in this category have prime loans, which people believe are safer because they have a fixed rate. These people did not make a major mistake to ruin their financial future; they had affordable mortgage payments until they lose their jobs. Once the jobs are lost, the already demanding bills get late fees attached due to missed payments. The enormous amount of debt becomes unforgivable by banks and that home bears the common sign of foreclosure. Many people who are fortunate to find a job within twenty-six weeks usually earn less than the previous job therefore the homeowner has a difficult time paying back.