The Housing and Economic Recovery Act of 2008 mandated the U.S. Department of Housing and Urban Development (HUD) to produce a report on the root causes of the housing market crisis. The report also outlined actions that should be taken to avoid another housing crisis in the future. Various factors are to blame, but do they abolish the consumer's idea of what happened?
The general public feels the housing crisis began because too many loans were given to too many people that couldn't afford their mortgage payments. Home loans were created with adjustable rates and promises to hold off payments for 2 years, giving consumers false hopes that their homes would more affordable in the future. When the future came, those people were unable to make payments and foreclosures spread across the nation like a wildfire.
The report seems to stick to this idea, but states there were multiple stages of the housing crisis process. "Arguably, the first tremors of the national mortgage crisis were felt in early December 2006 when two sizable sub-prime lenders, Ownit Mortgage Solutions and Sebring Capital, failed. The Wall Street Journal described the closing of these firms as “sending shock waves” through the mortgage-bond market. The failure of these firms was triggered by high levels of early payment defaults—newly originated loans on which borrowers quickly miss several payments."
"Various authors have identified that one way in which the regulatory structure failed to adequately adapt to changes in the market was through its continued reliance on consumer disclosure rules as the principal means of ensuring that borrowers made appropriate choices with regard to mortgage financing—even in the face of much greater variation in mortgage interest rates and fees as well as growing complexity of mortgage terms."
High risk loans are now being handled by various programs such as HOPE NOW, an alliance of counselors and lenders, as well as the Home Affordable Modification Program (HAMP), but the amount of permanently modified loans compared to the amount of loans needing to modified is still a wide margin. The government is hoping to close that margin within the next few years and continues to put pressure on banks to give out loans to qualified consumers to keep the housing market above water.
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Source: Report to Congress on the Root Causes of the Foreclosure Crisis
Written by Amy Munday
Huliq.com
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