Foreclosure – the word itself makes bankers nervous, investors angry, homebuilders desperate, and delinquent homeowners fearful. In such situations, no one wins. 1 in every 7 US home loans were in foreclosure or at least 30 days past due by the end of September 2009. The current crisis has led to the foreclosure of approximately 2.75 million homes in 2009 alone, and projections for 2010 and 2011 – upwards of 3 million – show only worsening of the situation. It is reported that 250,000 families lose their homes every three months, lenders lose from six to twenty cents on the dollar when trying to sell foreclosed homes, and the homebuilding industry has come to a near halt nationwide. Stimulus bill after stimulus bill has been passed in hopes of rectifying the situation, but nothing has made a lasting impact. The likely reason for this is there is no “one size fits all” solution. Each homeowner is facing a different situation from the next, and while the same principle of a solution can be applied to every homeowner facing foreclosure, the solution must be applied differently based on the severity and uniqueness of each case.
In order to create a meaningful policy proposal to solve the foreclosure crisis, the problem must be viewed as a socio-technical system (STS). Such a structure separates three aspects of the problem that must be thoroughly considered – technology, organization, and culture. This way, the STS provides a holistic understanding of the institution and the intricate connections among its three branches. Specific to the foreclosure catastrophe:
1. The technical component deals with the merits of the technical nature of the solution – in this case, the solution itself to the foreclosure crisis.
2. The organizational aspect addresses the people who will come in contact with the technical solution – homeowners, bankers, investors, homebuilders, and the federal government.
3. Lastly, the cultural element concentrates on how society will react to the solution and whether or not the solution upholds societal values.
Once grasping these three components, we can approach the system with a broader, yet deeper understanding of the root cause of the foreclosure crisis.
However, the root cause of the foreclosure disaster is the simultaneous interaction of many detrimental factors. First, the aggressive subprime loan product presented the illusion that homeownership was too easily obtainable. Secondly, banks began accepting a potential homeowners’ stated income on their mortgage application without verification. There was no accountability on part of the homeowner to tell the truth, and therefore people were “qualifying” for loans they would never be able to pay off, subprime loans specifically. Next, the home mortgage interest deduction in the tax code encouraged more people to seek homeownership to lower their taxes, which stimulated home buying even further. Additionally, banks were not reflecting subprime loans on their books; thus,...