Foreclosure Crisis

The History of the Foreclosure Crisis

There is no question that there has been a foreclosure crisis happening in the United States for the last several years. The effect of this major catastrophe in the real estate market has been felt nationwide. From about 2007 until 2010, many consumers wondered whether or not real estate was ever going to be a good investment again. As real estate prices have spiraled downward, investors have taken the time to scoop up deals on home foreclosures. In the 2011, the residual effects of the real estate crisis continued to loom. Before you can understand how to best capture these amazing deals, you first have to know the history of the foreclosure crisis and what caused it to happen.

If you ask an expert what caused the mortgage foreclosure crisis, you will get many different answers. Perhaps it is a mixture of things that happened all the same time. Not only has this been a single-family home issue, but there's also been a commercial real estate crisis at the same time. In fact, many people have noticed the lack of commercial building going on in most areas of the United States.

Here are some of the factors that were at play which caused the foreclosure crisis:

• Negative equity: Many homebuyers were able to get loans from subprime lenders that allowed them to get into a property by paying nothing down. Often, buyers would even finance homes at more than they were worth. This led to the situation of negative equity that could only end up in foreclosure.
• Low credit scores: The subprime mortgage lending market allowed people who had very low credit scores to still be able to purchase a home. A credit score gives a snapshot of how a person typically pays their bills. Because these people were not as apt to maintain a healthy financial picture, it was only a matter of time before home foreclosures started to happen.
• Mortgage fraud: There were many mortgage fraud schemes going on during this time. For instance, an appraiser may have been paid to value a home higher than what it was really worth. In turn, borrowers were put into properties that were not valued as much as the appraisal showed.
• Unemployment: As unemployment started to creep upward, more people started having problems paying their mortgage payments. This was especially true for buyers who had gotten in under a subprime mortgage. They were already teetering on the edge of being able to afford the property in the first place, so unemployment threw a lot of these people for a loop.
• Adjustable mortgage rates: Many of the sub prime loans had mortgage rates that would reset upward. This would cause borrowers to stop paying for their homes when they could no longer afford the monthly mortgage debt.

The Foreclosure Freeze

During 2010, some banks decided to put a freeze on foreclosures. This was in an effort to increase home prices by removing some of the low-end inventory from the market. For instance, Bank of America had a freeze on foreclosures in all 50 states. Another reason for this was that some banks were being questioned about whether or not they really had the right to foreclose on certain homes. There were a lot of questionable paperwork processes.

Robo-Signing

One of the questionable parts of foreclosure paperwork in 2010 was called robo-signing. This process allowed banks to quickly sign foreclosure documents without even reading them. For this reason, many foreclosure cases were opened and closed without the proper process. Judges started to distrust many loan servicers because of this. That meant that the foreclosure process was scrutinized a lot closer, especially in states with judicial foreclosure.

Many large banks stopped their entire foreclosure process during this bank crisis just to make sure that they were following the proper procedures and foreclosure laws. This only served to lengthen the housing foreclosure crisis even more.

When a home is purchased, the debt instrument is called a note. It's kind of like an IOU. Once mortgages are bundled together into a unit called securities, they are sold off to investors. The notes are then put into a trust. However, the big issue during the scandal was that loan servicers were not required to show the actual note. In fact, most of the time they didn't even know where it was. Judges didn't require most loan servicers or investors to show the actual note. They just had to give an affidavit that they owned it.

Now, judges do want to see the actual note in order to prove that the servicer has the right to foreclose on the property. As of 2011, many banks were still using the robo-signing process.

Investor's Benefits

The real estate crisis in the USA has provided a great opportunity for home investors. First of all, the inexpensive prices for homes that were once much higher in value is prevalent in many areas. Some homes are going for less than half of what they were once worth after a homeowner was unable to stop foreclosure. There were overinflated prices in many areas of the United States, especially in places like Florida and California. Some homes are going for pennies on the dollar.

Investors who have money to spare can find deals on these kinds of homes. With lower interest rates, the real estate foreclosure market is a hotbed of activity for home buyers and investors. There are also some programs coming about that allow people with lower credit scores to still be able to get into a home. In addition, some government assistance programs are available to allow buyers to get into a property.

For instance, the USDA has a home buying program that allows people who have lower credit scores to still be able to purchase a property in a rural area. They may be able to get in for no money down for a very reasonable interest rate. However, these loan programs are backed by the government and are not similar in nature to the old subprime loans that started the foreclosure crisis in the first place.