Other than personal responsibility, or lender fraud, are there economic pressures causing foreclosures?

Question

Every conversation I hear about the record foreclosure crisis revolves around greedy borrowers buying houses they cant afford, speculators getting bad loans cause they want invest in property and are therefore greedy, and greedy crooked lenders making bad loans. But there are other things going on in our society that might seem to point as at least possible other causes. For example, Did you know that there are many types of subprime loans? one type is for someone with good credit who maybe can only afford a $200,000 house, and gets a rate that is artificially low for a year or 2 just so they can qualify. Another type however is for people who do not have the down payment to buy a house and therefore get an adjustable rate mortgage with higher rates, and possibly even higher rates in 2 or 3 years. Still another type is for people who do not have the requisite computerized credit score, which means that you automatically have to get a high rate adjustable loan as well.

why do so many people in this country not have the good credit necessary to buy a home? Who made up these credit scores, and decided the cut off as to who will get a good "A paper" mortgage? What about all these other things going on in our economy that we hear about? are they affecting this as well? Like the record breaking illegal immigration which we know are people coming here taking jobs and depressing wages? what about the record outsourcing of jobs? what about the record consistently high gas prices, and risining inflation, etc.. I am sure there is blame to go all around, and it is in fact correct to blame lenders and borrowers somewhat. What bothers me is how politicians seem to really want to discuss and point fingers to everyone else except themselves. I believe they share some blame as well and that the foreclosures are also partly due as a result of the bad policies they have been pursuing for the last few years.

I forgot to add the high cost of health care and the millions of working americans who sometimes do not get it at work...etc.... as one of the things going on in the economy. The american people as a whole are clearly being squeezed. And isnt it coincidental that these foreclosures are happening at the same time?

As someone who has been in the mortgage industry for many years, I know that studies show that most foreclosures happen as a result of a catastrophe usually involving significant income loss, such as loff of job, divorce, illness, etc. Not all people who face foreclosure are careless derelicts who are too stupid to sign on for a payment they cant afford.

Answer 1

some of the highest foreclosure rates in the country are in Cleveland and Detroit areas -- which have depressed economies due to depressed US industries centered there.

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credit scoring was invented as a way to uniformly apply a system based on operational research [past history over many, many borrowers] into predictors of late payments, foreclosures, workouts, etc.

Among ohter advantages, it takes the personal judgment factor out of the lending process and thus limits racial bias by lending officers.

It also assures remote loan buyers of the standards used to grant the loan, which makes geographic diversification of lending possible from a loan owner's viewpoint.

Answer 2

One reason for the high foreclosures that I read recently is because of the change in bankruptcy laws that don't allow people to not have to pay off their credit cards. You cannot have them "forgiven". They must be paid and yet, the rates and fees for them are still sky high. Salaries and wages are not going up even though the cost of living (the basics only) have all gone up and continue to do so. Also, the majority of Americans do not understand enough basic finance and credit cards. My husband is one of them. My parents taught me very early about basic finance and accounting. But not everyone is so lucky. Basic finance and accounting is not something taught to all students as I feel that it should be.
I have to think that it's because these companies make so much money that it's in their best interest to vigorously oppose any widespread education. This might be a bit far fetched but given the damage, there has to be a reason that it's not taught. Also, I know 2 finance guys who know how to get around the credit system to get questionable borrowers approved. The whole system is corrupt.

Answer 3

well there's alot of blame to go around, but i think greed plays the biggest roll in this, not counting interest rates and job losses