Real Estate Market Collapse

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

There were many people affected by the most recent recession and therefore forced to foreclose on their homes. Losing a home due to foreclosure leaves a big black eye on an individual’s credit score and forces these people to be patient until they are approved to rejoin the housing market. “Boomerang buyers” are a group of potential homeowners who are re-entering the housing market after losing their homes due to foreclosure.

There are three aspects to the damage done to homeowners in the recent foreclosure crisis. First, their credit ratings were damaged. Second, their personal financial situations were damaged. And, third, their investment confidence was damaged. All three aspects of homeowners’ post-foreclosure stress disorder have to be addressed before boomerang buyers will be ready to return to the mortgage market.

Approximately five million homes have been foreclosed since 2007 which, along with an untold amount of short sales, have caused an estimated $1 trillion in lost wealth in the United States. This crisis affected our minority populations and their communities to a larger extent with estimations of 17-20 out of every 1000 minority homeowners suffering foreclosure versus only 10 out of every 1000 Caucasian homeowners. This was due to targeting by the subprime mortgage companies specifically targeting African-American, Hispanic and Asian buyers with risky mortgages even when they could have qualified for prime loans. Also affected were many who lost their homes due to income loss due to the Great Recession which had its beginning in the subprime mortgage crisis. Many of those that have lost their homes during this crisis are interested in being homeowners again and this essay will cover some possible ways for all of these boomerang buyers to enter into the housing market again.

During the last fifteen years, the housing market has been through a lot. For many, what appeared to be an investment in their future turned into a ruinous mistake when the housing bubble burst. In 2011, nearly four million homes were foreclosed upon in the United States. Three million, nine hundred twenty thousand, four hundred and eighteen families and individuals lost their homes to foreclosure. Since then, the economy has begun to repair, and foreclosure rates for 2014 are projected to be the lowest they have been since 2007. We are starting to heal, and the people who suffered most are starting to look for a second chance. These “boomerang buyers,” who experienced foreclosure and are looking to buy again are becoming a valuable part

The life that homeowners were accustomed to, the quiet enjoyment and peace of mind of homeownership suddenly became a nightmare. During this time America was faced with the weakest economic downturn it has experienced in more than eighty years. As the real estate market collapse was in high gear, most Americans were experiencing layoff from jobs. People were losing their jobs at an alarming rate and the unemployment rate hit double digits. Families were forced to downsize and cohabitant with families or be faced with the harsh reality of homelessness and living on the streets.

“Those who cannot remember the past are condemned to repeat it.” These words were first written by Italian philosopher, George Santayana. The meaning is all but spelled out for the reader, the past is important, it deserves its due - don’t brush it aside, don’t pretend it didn’t happen – to better build the world of tomorrow, you need to remember (and account for) the mistakes of yesterday. The mortgage crisis, and all that it lead too for our economy, back in 2007, is an event that should never be forgotten… lest we inadvertently doom ourselves by going through it all over again. Today, of course, the situation has significantly improved; our nation managed to get over this rather sizable hump and bounce back from it (not fully healed, but certainly better than we were only a few years ago). That’s not good enough for me though; in order to truly overcome this event (that many have already put behind them and forgotten about, myself included, prior to writing this essay) and push ahead, we need to go over how it happened in the first place. Therefore, today I’ll be talking about the mortgage meltdown crisis, suffered by the United States and felt around the world, of 2007; I will cover how the crisis actually happened, the lessons learned from the collapse / the silver linings of the collapse, and how real estate buyers are intelligently learning from the past in order to benefit today.

In order to prevent another housing crisis we must implement programs that would teach housing buyers and potential homeowners how to buy homes wisely because most potential homeowners are unsophisticated and do not know at what rate to buy homes and set personal guidelines for mortgages. The complexity of buying homes not only affected homeowners and home buyers but also confused sophisticated securities investors in that these securities investors sold MBS (Mortgage Backed Securities) at an excessive price range that the MBS should never had been sold at.

One of the biggest lessons that could be learned through the mortgage meltdown recovery involves the ease at which a homebuyer could borrow money. Mortgage programs were available for almost anyone who was interested in purchasing a house – even if they legitimately were unable to afford it. Creative marketers continued to bend mortgage underwriting guidelines to increase volume and profit. Investors on Wall Street have voracious appetites for steady returns on investments and the mortgage securitization market was no exception. Business executives continued to make it easier to borrow money, thus increasing their returns as these income streams were bundled and sold again and again on the secondary market. No one noticed the volatility that was created by continuing down the path of easy money. As the market collapsed, there was no small correction to the rules and regulations that would save the inevitable implosion. Any and all remaining mortgage lenders made it virtually impossible to borrow money for several years. Without access to mortgage money, houses would cease to sell. The lesson that was learned in this situation was that the rules, regulations, and underwriting guidelines used to lend money had to

The foreclosure crisis, which is often termed as foreclosure gate remains an on-going conflict, which refers to the epidemic closure initiated by lenders and various large banks in the United States. The direct consequence of this foreclosure is linked with the spread of fear amongst the investors in the United States. A number of studies have also evaluated the increment in the suicide rates after the inception of foreclosure crisis. The crisis relevant foreclosure which glided over the nation years ago, served as a reason for forcing people out of their homes when the economy hit the set back. However, those victims along with the economy are recovering at a gradual pace. The emergence of the concept of foreclosure crisis leads towards the emulation foreclosure victims which are now transitioned into and categorized under the terminology of “boomerang buyers.” Amongst the various actions taken by the "boomerang buyers” involve taking their home ownership back. This essay will highlight the concept of “rent-to-own” and other options as buyer prepare to go “all in” on another mortgage.

Walking into a Starbucks in the affluent town of Hinsdale, IL, it was not hard to find Ms. Sadiki and her son Azzam, given that they were the only non-white people in the store at the time. The Sadiki family, first generation immigrants from Pakistan, makes up part of the miniscule 3.3% of Hinsdale residents who are not White or Asian/Pacific Islander (Hinsdale Market Profile: 4). Ms. Sadiki had convinced her husband to move to their family into one of the few apartment complexes within the zoning lines for Hinsdale Central high school, so that her son Azzam would have the best chance of going to a good college. In the meeting, she openly expressed to my mother and I how hard stressed out she and her husband had been recently given the financial

When the housing market collapse occurred I was much younger and not fully aware or advised of how serious the situation really was. Several of my family members owned homes then, but looking back now they sheltered their children from the situation completely. I realized still to this day I do not know how or what they were doing to get through the market collapse but I realize my situation could have been much worse. Now years later I am faced with the decision to buy a home someday like many in my generation and those looking to buy property again. But just like a growing society its citizens must learn from previous mistakes made in order to avoid the same outcomes and flourish.

After increasing my own financial awareness and witnessing the financial journeys of others during the past recession, I find that boomerang buyers should not consider purchasing a home as their sole financial investment. Mortgages with ballooning payments mixed with hopes of future refinancing are a dangerous combination. These factors precipitated the last housing bubble and the eventual recession period. In order to learn from past behavior, home buyers should ensure that they habitually save for a “rainy day fund” because financial rainy days have proven to be cyclical. Purchasing a home should be a process that results in a buyer feeling comfortable with the home they choose versus simply selecting the largest mortgage for which they

With all of the incentives and mortgage products given so easily to people that couldn’t afford the high prices (including interest rates), many people defaulted on their first mortgages because they were no longer were able to receive the profit from the homes they first intended to flip. “During the first quarter of 2008, nearly 9% of all mortgage holders were delinquent or in foreclosure, the highest rate since recordkeeping began in 1979. Foreclosure filings more than