The US Foreclosure Crisis
Chris Manning (Professor of Real Estate And Finance at Loyola Marymount University) gives expert video advice on: What led to the current foreclosure crisis in the US?; What are the most common causes of foreclosure today?; Do banks want to foreclose on my home? and more...
What led to the current foreclosure crisis in the US?
Unfortunately, the current foreclosure crisis in the US is the result of a proliferation of making variable rate mortgages with 'teaser' low rates over the last 2 to 3 years, where homeowners are experiencing their mortgage payments each month increasing dramatically, sometimes as much as doubling overnight, and they were not adequately warned that there was this risk in advance. That is one of the reasons the United States government is so sympathetic to assisting homeowners right now, because of the failure of the mortgage industry and the trust deed industry to adequately warn homeowners of the dramatic jump they could experience in their mortgage payments.
What are the most common causes of foreclosure today?
The most common causes of foreclosure today are loss of employment by one or both of the homeowners or the resetting of the mortgage payment amount due to a variable rate mortgate or initial teaser rate.
Do banks want to foreclose on my home?
That is anything but the case. Lenders do not want to foreclose on people's homes. What they want is to have the mortgage terms paid as agreed, and they will usually do anything they can that is reasonable to assist the homeowner in being able to come up with flexibility or whatever it might be to enable them to make those mortgage payments over an extended period of time.
Why do lenders foreclose?
A lender's primary concerns in the foreclosure process relate to money. And these are 2 primary concerns. One, they want the mortgage loan terms paid as agreed, or in the event that's not possible, the mortgage balance to be paid off as soon as possible. But to accomplish that, they have a secondary concern, which is the collateral for the mortgage loan, and that is the home itself. Mortgage lenders realize that the sooner they can get physical possession of a homeowner's home, should they not be able to make mortgage payments as agreed, the stronger position they are in to get the money for that home. Because they have full control over selling that home, just like any other homeowner, and getting paid as high a price as the market will pay them for it.