How Did We Get Here?
AWhile the article by Robbie Whelan of the Wall Street Journal is intended to give you a snapshot of 6 very different people that have gone through foreclosure (it’s worth a read), it also does a nice job of summarizing how we got where we are today. Some interesting facts from the article are quoted as follows:
*The foreclosure crisis that erupted four years ago has claimed more than five million American homes—about 10% of all homes with a mortgage.
*When interest rates on the adjustable-rate mortgages finally climbed, many borrowers began falling behind on their payments, leading to the first wave of delinquencies and defaults.
*At the start of 2008, with the U.S. economy weakening and job losses multiplying, the defaults began to spread as millions of Americans with plain-vanilla prime mortgages also ran into trouble making their payments.
*Borrowers, even those with stable jobs, began to see such negative equity as a reason to stop making their payments. That triggered the third wave of the foreclosure crisis: the strategic default.
*The Obama administration is working with banks to head off future defaults and stanch the foreclosure wave by modifying mortgages. The federal programs have so far disappointed.
*The crisis looks set to continue. Another four million people are in danger of losing their homes, according to the Mortgage Bankers Association. And until foreclosures are cleared, the housing market is unlikely to recover.
*The foreclosures have had a silver lining for one group of Americans: Many families locked out of the housing market during the boom can now afford to buy.
These are some crazy facts and figures! Are you involved?
Faces of the Home-Foreclosure Crisis
The Tidal Wave of Defaults and Delinquencies That Began Four Years Ago Has Hit Individuals at All Levels of Society
The foreclosure crisis that erupted four years ago has claimed more than five million American homes—about 10% of all homes with a mortgage. It began in lower-income neighborhoods and has spread to some of the most exclusive addresses in the U.S.
The seeds of the crisis were planted a decade ago when banks, discovering the high returns from selling bundles of securitized mortgages, relaxed lending standards and originated millions of adjustable-rate subprime mortgages. Such loans were designed to allow just about anyone to get a home loan.
When interest rates on the adjustable-rate mortgages finally climbed, many borrowers began falling behind on their payments, leading to the first wave of delinquencies and defaults.
At the start of 2008, with the U.S. economy weakening and job losses multiplying, the defaults began to spread as millions of Americans with plain-vanilla prime mortgages also ran into trouble making their payments. In some cases, borrowers found they had paid inflated prices for homes they could no longer afford. Others got into trouble by or borrowing against the equity in their homes. According to the Federal Reserve, Americans withdrew more than $1.1 trillion of equity from homes in 2006 and 2007.
By the end of 2008, with home values plunging, one in six homeowners found themselves underwater—owing more on their homes than they were worth. Borrowers, even those with stable jobs, began to see such negative equity as a reason to stop making their payments. That triggered the third wave of the foreclosure crisis: the strategic default.
The Obama administration is working with banks to head off future defaults and stanch the foreclosure wave by modifying mortgages. The federal programs have so far disappointed. The Home Affordable Modification Program, for example, was launched in the summer of 2009 with the intention of modifying three million to four million loans. So far, it has provided permanent help to fewer than 450,000 struggling borrowers.
Here are six stories of people caught in the foreclosure crisis, by circumstance or choice—from those who fell victim to hard times to others who squandered equity on cash purchases.
The crisis looks set to continue. Another four million people are in danger of losing their homes, according to the Mortgage Bankers Association. And until foreclosures are cleared, the housing market is unlikely to recover.
The foreclosures have had a silver lining for one group of Americans: Many families locked out of the housing market during the boom can now afford to buy.