Foreclosure Crisis

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Root Causes of the Foreclosure Crisis

The foreclosure crisis had its roots in the collapse of housing markets after the 2006 peak. Reducing bank liquidity following falling interest rates and the unexpected failure of subprime mortgages caused consumer confidence to waver too. As banks began to fail, talk of a mortgage crisis began. A housing crisis followed in the final months of 2008 as families lost jobs and began to be evicted from their homes. Government foreclosure help was impeded by political squabbling and it was almost a full year before large-scale measures were in place. The mortgage crisis cause was, therefore, multifactorial.

The Darker Side of the Mortgage Crisis

The mortgage crisis was sparked by interest rates of subprime mortgages kicking up at the same time as banks began to fail. But the mortgage crisis cause was more complex than just this. Attempts by banks to have the mortgage crisis explained as a situation not of their own making were confounded by the abysmal lack of mortgage help they provided. A fundamental part of any comprehensive subprime mortgage crisis explanation must include the cynically heartless way in which some banks sold risky mortgages to the very poorest people, and then left them with no mortgage bailout options when they lost their jobs. The lack of mortgage crisis help when people worst affected by the housing crisis cried out for assistance is an indictment on the subprime mortgage scandal that will echo down the halls of time.

How the Housing Crisis affected Ordinary Americans

Most American homes are bought with borrowed money at a time when there is sufficient income to cover payments. A housing crisis, especially a subprime housing crisis, blows this theory out the water because you cannot use grains of sand for money. Americans who lost their jobs or could not afford exploding subprime loans hardly understood the housing crisis causes either. All they knew was that they were in a mortgage crisis of their own, and that was what the American housing crisis meant to them. The overall housing market will take many years to return to positive equity.

Could Foreclosure Statistics have Predicted Things?

Historic foreclosure statistics correlated with attendant events build an economic model that could at least have partly predicted what happened. Banks and government like to over talk the role that foreclosure crisis statistics might have played in guiding policy. One wonders, now that the causes of foreclosure crisis are better understood, whether key players will remember how a few isolated foreclosures can explode into a full blown foreclosure crisis in future years.