Everyone wants to point the finger at one culprit, but in the case of the foreclosure crisis there are several reasons as to why the country has seen the largest financial crisis since the Great Depression. At first it was primarily believed to be solely the fault of the sub-prime mortgage practices, which took place just a year or two before the crisis really began.
The sub-prime mortgage practices certainly deserve much of the blame. As reported in a New York Times article in December 2006, “about 1.1 million homeowners who took out sub prime loans in the last two years will lose their houses in the next few years.” The article goes on to explain that, “the foreclosure will cost those homeowners an estimated $74.6 billion, primarily in equity.” Most sub-prime mortgages were given to individuals who already had bad credit, this was mainly because the lenders were able to make more from the high interest rate that they qualified for.
According to a report discussed on NPR's Day to Day August 4, 2008, a new wave of problems is coming from what are called Alternative A loans. They are ranked between prime and sub-prime loans, and were given to individuals who have decent credit. However those individuals who have obtained these loans are not able to keep up with the interest and principle, as a consequence their loan balances are going up. Typically this isn’t much of a problem, but with the housing market in its current state, housing prices are falling rather then increasing. This has caused big problems for the Alternative A loan holders.
Sub-prime mortgages are at the top of the list as far as blame but the state of the national economy is not something that can be ignored. Our national debt is far beyond anything we have ever seen; the word recession is no longer a fear but a reality, and unemployment rates are through the roof. So it should be little surprise that a good number of people in our country are unable to pay their bills, especially the adjustable rate mortgages given through the sub-prime mortgage practices.
The future of the housing market is certainly on rocky ground, and no one has a clear idea of when the foreclosure crisis will see its end, but as we have been thought by the past our country has prosperous times as well as difficult ones. Hopefully something will be learned from the situation, and history will not have to repeat itself.
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