The Foreclosure Problem In America Essay

1079 words - 4 pages

The amount of foreclosures in this country has caused an incredible burden to our economy. It was estimated that in December 2007 foreclosure filings had jumped 97% from the prior year. Since 2006 over 220 mortgage lenders have gone out of business, filed bankruptcy or significantly reduced their lending policies due to fallout from the subprime mortgage crisis (http://EzineArticle.com/?expert=Nick_Adama). The amount of homes in some stage of foreclosure jumped from 0.58% in 2006 to more than 1% in 2007. The foreclosure increase was the first sign of the trouble to come. As of October 2009 it has been shown that higher priced homes are taking a greater share in the foreclosure activity (www.Zillo.com). Some of the states with the highest foreclosure rates in the nation include California, Florida, Michigan, Colorado, Ohio, Georgia, Arizona, Illinois and Indiana (http://EzineArticle.com/?expert=Nick_Adama).

While there are certainly a number of causes for the crisis, it can no doubt be directly related to the current economy and the fact that the unemployment rate is the highest it has been since the great depression. However, the initial cause is more deeply rooted in the fact that buyers have been being approved for loans that were above their means. Lenders were so overzealous to increase the number of loans they closed on that they were lending funds to buyers with little to no money down. They were also not paying close enough attention to whether or not borrowers were really capable of repaying their loans. This trend led to a domino effect that increased the amount of buyers who could no longer afford their mortgage payments based on their debt to income ratio, forcing them to be foreclosed on. This effect has only been exacerbated by the current rise in unemployment.

In order to go forward and find a solution for our dilemma we must first put a stop to the actions that have gotten us in this situation in the first place. We must take a close look at our mistakes by analyzing our lending practices to avoid this issue in the future. Banks should not be lending money to people to buy houses at 100%. Some of these people are not taking their commitment to buying a home seriously. Without having to work hard to invest their own money into the purchase of their home, it makes it easier for them to walk away without having to worry about cutting their losses. In this type of situation there is no loss to the purchasers, the lenders are the only ones who lose. Lenders have also been lax in lending money to people who either do not have good credit or who have a very high debt to income ratio. These lenders need to be thinking more conservatively in case of future problems such as borrower job loss. Buyers also need to be more conservative. They need to be able to maintain a budget that allows for such unforeseen emergencies without losing their houses. This is why it is very important not to over extend their debt. Purchasing a home...

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