I am not sure that the full impact of the foreclosure crisis that took place in this country last year is fully understood by most U.S. citizens. That is, unless they were a foreclosure victim, and that changes everything. Even though the housing market may be recovering, the country is still suffering. Americans lost $192.6 billion in wealth, or an average of $1,700 per household, last year due to the foreclosures. A report released May 16 by the Alliance for a Just Society, a coalition of progressive grassroots organizations across the country, tells this sad story. The report also found that the United States could actually lose $221 billion if public officials don’t come to the aid of millions of borrowers who owe more on their homes than the homes are actually worth.
The findings indicate that many Americans are still suffering from the housing bust, which was the result of major lenders pushing shoddy loans on borrowers who couldn’t afford them. Meanwhile, Wall Street investors and construction companies are reaping the benefits of a recent rebound in the housing market. LeeAnn Hall, executive director of the Alliance for a Just Society, told The Huffington Post:
[The wealth loss] has a major impact not only on the families but on communities as a whole. They’re putting so much money into trying to save their home, the ripple effect that has on spending hurts the whole community.
The loss of wealth was more pronounced for communities of color, which suffered 17 foreclosures per 1,000 households and lost an average of $2,200 in wealth per household, according to the report. In contrast, predominantly white communities saw 10 foreclosures per 1,000 households and lost an average of $1,300 per household. Ms. Hall made this observation that such a “disparity in terms of wealth loss is pretty shocking and glaring.” She is absolutely correct in her assessment.
But the findings in this report really shouldn’t come as a big surprise, considering that money lenders targeted black and Hispanic families for subprime loans in the lead-up to the financial crisis. The report found that Black and Hispanic borrowers were 80 and 70 percent, respectively, more likely to receive subprime loans than white borrowers. That phenomenon, in part, contributed to the growth of the racial wealth gap during the recession.
The Alliance for Justice report offers one solution, “principal reduction,” to the problems it revealed. That proposal, while somewhat controversial, would help underwater borrowers by reducing the principal amount they owe on their loans. Ed DeMarco, the soon-to-be-replaced head of the agency overseeing Fannie Mae and Freddie Mac, has rejected principal reduction as a solution to the nation’s housing problem. He says it promotes “moral hazard.” I really don’t understand what he means. But in any event, I totally disagree with him and hope that his successor will have a different view.
The study found that a principal reduction program would save more than $7,000 per underwater household on average and boost the economy by more than $100 billion. That makes sense and it should be done. Ben Henry, the co-author of the report, told HuffPost:
If we reduce their payments, it benefits the overall neighborhood, it benefits the bank, it’s a win-win solution. The benefits of doing this are far reaching and profound.
Hopefully, those in the federal government in positions of power and authority have learned a lesson during the past few years. If so, they will take all necessary steps to make sure Wall Street acts responsibly in the future. Pure old greed motivated the mortgage lenders, drove their runaway train, and the national foreclosure crisis almost destroyed our nation’s economy.
Source: Huffington Post
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.