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Real Estate Foreclosures - Essay Example

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Real Estate Foreclossures and The Financial Crisis up till 2011 in the U.S Table of Contents Table of Contents 2 Introduction 3 Real Estate Foreclosures and the Financial Crisis 3 Causes of Foreclosures 4 Impact of Foreclosures on Economy in the USA 5 Conclusion 8 Works Cited 9 Introduction Foreclosure occurs if a property owner is unable to pay back the amount of principal money or interest of his/her granted loan…
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Download file to see previous pages Through foreclosure process, banks or creditors can reclaim the possessions of owner if he/she is unable to fulfill the contract of mortgage loan. As the financial crisis has occurred in the USA, the numbers of foreclosures have increased. Several banks such as Bank of America, JP Morgan Chase, and Ally among others had announced foreclosures against the homeowners who failed to repay the loan amount. Real Estate Foreclosures and the Financial Crisis The unreasonable strategies of financial institutions in the USA had allowed many people to purchase houses which they could not manage to pay for. It was unwise for people to think that house prices will only increase and as a result people started to take loans and purchase property from them in the prediction that the cost will increase in future, which will make it easy for them to repay the amount. When the bubble burst, the house price began to decrease considerably and several home owners were trapped unexpectedly to pay for the loan amount. As people understood that they will lose more money by selling their property compared to the loan amount, they foreclosed. The increasing rate of foreclosure had freaked several banks as well as hedge funds that had already converted the loan amounts to securities and comprehended large amount of losses (Edmonds, “What's The No. 1 Reason for Foreclosure?”). According to Mortgage Banker Association (MBA) above 900,000 households had foreclosed in the year 2008 which was 71% more compared to 2007. It was recoded as highest foreclosure rate over 36 years in the US economy. The main reason for foreclosure was the attitude of people of maintaining lifestyle beyond their affordability. The subprime loans frequently arrive with low preliminary interest rates and thus people with less affordability are the key receivers of it (Edmonds, “What's The No. 1 Reason for Foreclosure?”). Causes of Foreclosures The unconscious purchasers of loans are liable for foreclosure crisis in the USA. In order to benefit from the large loan values, people had chosen several dishonest paths such as fabricating their income, and increasing the values of pledged properties. The lenders had also avoided taking necessary actions against such conducts and made this happen. Generally, people are not very aware about financial details with respect to planning their own revenues. They were simply attracted by the smartly influencing media and thus often fall for overwhelming mortgage culture. The leaders and politicians were more engaged with spending more amounts compared to tax revenue. The high expenditure had resulted in deficit of budget. In order to deal with the deficit, government had produced more currency which brought inflation and the value of Dollar fell significantly. As a result, the prices of essential goods increased and ordinary people became incapable to cope up with the higher inflation rate. The expense for mortgage amount increased due to fluctuating interest rate and foreclosure was the end result of it. Several unethical decisions to deal with the deficit of budget such as borrowing money from overseas countries and spending excess money on war had degraded the economy of the USA (Vidmar, “Seven Ways Foreclosures Impact Communities” ...Download file to see next pagesRead More
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