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The Foreclosure Crisis Of Foreclosure

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Again, there were certainly many people who bought homes that they couldn’t afford and used their equity for loans like there was no tomorrow. Therefore, the foreclosure was sort of a formality and an appropriate action by the banks in those cases. Although, there were many responsible people who bought affordable homes, but got behind on payments after the economy crashed. Normally under those circumstances the bank has an incentive to keep borrowers in their homes because foreclosure is generally a costly decision for the bank as foreclosed homes are sold at a discount on the open market. However, many lenders have a perverse incentive to foreclose on a loan if the loan is insured through various investments such as derivatives and government guarantees. That insurance pays the lender the full price of the loan, instead of the reduced price from a sale on the open market. Thus, in a predictable fashion, the homeowners with loans that were backed by insurance have been foreclosed upon at significantly higher rates, as opposed to the borrowers with loans without insurance.
Furthermore, homeowners don’t have much recourse when their foreclosure case goes to court. The judges are pressured to clear their docket as they are literally forced to conduct hundreds of cases every day. Under those circumstances, the judges are naturally going to side with banks. The sheer time pressure alone negates anyone from properly examining if the documents issued by the banks are valid.

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