In a detailed report on the current state of the foreclosure crisis in the U.S., msnbc.com examines some of the issues currently troubling America’s real estate market and what these problems could mean for the future.
How the Foreclosure Crisis Started
During the real estate bubble, mortgage lenders eagerly underwrote home loans because credit was easy to come by. But:
- Many loans had adjustable rates, meaning that monthly payments would adjust (usually upward) after a certain period of time.
- These loans seemed like a good idea because home prices had risen steadily and people assumed they’d continue their upward climb. When the higher payments kicked in, many borrowers figured, they’d refinance or sell their home for a profit.
- The rising prices were part of a bubble. When it burst, home prices plummeted.
- Many borrowers were left owing more on a house than it was worth and unable to sell their homes, refinance or make monthly payments.
- The adjustable rate mortgages began resetting and many people’s monthly payments shot up.
- Layoffs began plaguing the country, meaning that many people lost their income, making difficult monthly payments impossible.
- Without making payments on their houses, many families found themselves forced to leave their homes because of mortgage foreclosure.
- The glut of houses on the market (both new and abandoned by foreclosure victims) mean that prices have dropped even lower.
Why Modification Programs Aren’t Working
Naturally, the government is aware of the foreclosure situation (it’s hard to ignore the 2.8 million citizens threatened with foreclosure last year, or the 3.5 million predicted for this year) and has taken steps to help homeowners. But, accord