The Foreclosure Crisis: Causes and Solutions
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Transcript of The Foreclosure Crisis: Causes and Solutions
American Federation of Labor and Congress of Industrial Organizations
The Foreclosure Crisis:Causes and Solutions
The housing market bubble
Source: S&P/Case-Shiller Home Price Indices
Unemployment is the leading cause of foreclosure
Source: Congressional Oversight Panel, March 2011
Homeowners are not to blame!The foreclosure crisis was caused by:
Wall Street GreedMortgage backed securities and subprime lending
Regulatory FailuresLack of government regulation of the financial sector
Unstable Economy Wages stagnated leading to greater household debt
Foreclosure rate heat map
Source: RealtyTrac, April 2011
Disproportionate impact on communities of color
Reverse redlining - Banks sold subprime loans to homeowners who qualified for prime loans
Subprime loans are more at risk - 21.26 percent of subprime fixed loans and 25.32 percent for subprime adjustable rate loans are delinquent.
What started as a subprime crisis now affects all Americans - 63 percent of all foreclosures are now fixed prime loans.
Advice for Homeowners: Tip #1: Start Early
The sooner you take action, the more likely you will be able to save your home.
Homeowners should take action when they first have trouble paying their mortgage
Help may be available even if you are still current on your mortgage payments
Do not wait for a foreclosure filing before seeking help – act now!
Advice for Homeowners:Tip #2: Seek Help
Seek help – you have a greater chance of success if you have an expert on your side
Work with a non-profit housing counselor who is familiar with loan modifications
Free help is available from government-qualified housing counselors
Be wary of scams offering help for a fee
Advice for Homeowners:Tip #3: Stick With It
The mortgage modification process can take a long time to complete
Keep copies - the bank may ask for the same document multiple times
Continue to seek a modification even if you also receive a foreclosure notice
Stay in contact with your bank and HUD approved housing counselor
Ask for a short-sale or deed-in-lieu of foreclosure
Occupy home payment free during foreclosure
Negotiate a mortgage modification with the bank
Three options for homeowners who are at risk of foreclosure
Ask for a short-sale or deed-in-lieu of foreclosure
Short-sale: you find a buyer for the home
Deed-in-lieu: you give the bank the home
The bank may forgive your unpaid loan principal
Hurts your credit score and you have to move
Occupy your home payment free during foreclosure
Banks often wait 3-6 months to initiate a foreclosure
Foreclosure takes 3-12 months (varies by state)
Homeowners can save cash for the future
Hurts your credit score and you have to move
Negotiate a mortgage modification with the bank
The goal of a mortgage modification is to reduce the monthly payment to an affordable level
Banks and mortgage investors have an incentive to avoid costly foreclosures
Getting a modification usually requires showing that the homeowner has an economic hardship
Homeowner keeps their home
Different types of mortgage modifications are available
Principal ForgivenessInterest Rate ReductionForbearanceTerm ExtensionRepayment Plan
Most Effective
Least Effective
Finding a housing counselor
Be wary of scams asking for moneyFree home counseling is available to
homeowners facing foreclosureU.S. Housing and Urban Development
provides a list of government-approved counselors
www.makinghomeaffordable.gov Hotline Number: (888) 995-HOPE
Finding a housing counselor
www.naca.com (888) 404-6222
www.ahcoa.org (888) 409-3557
www.unionplus.org (866) 490-5361
Questions?