Foreclosure and the Foreclosure Crisis

1. BUSINESS AND PERSONAL LAW Foreclosure and the Foreclosure Crisis DECEMBER 17, 2013

2. Intro Video-FORCLOSURE • http://video.pbs.org/video/1513485417/ • WHEN YOU WATCH….THINK… • How much waste a foreclosure can result in. How could this problem of waste from foreclosure be remedied? What solutions can you think of?

3. Intro Video-Follow Up • How does watching this video make you feel? • Why do you think many homeowners “walk away?”

4. Foreclosures have reached a record high… • Since 2007, approximately 3 million Americans have lost their homes.

5. Deciding to purchase a home is a major decision. • The price of the home is not usually what the buyer actually pays out, because many people get a loan, called a mortgage, when they buy property. • The mortgage payment includes a portion of the cost of the home, as well as interest on the loan.

6. Deciding to purchase a home is a major decision. • People hope their houses will increase in value over time, so when they are ready to leave it, they will make enough profit on the sale to both pay off the mortgage and have some cash left over as a profit.

7. Deciding to purchase a home is a major decision. • Previously, families or individuals could not get a mortgage if they did not have excellent credit, at least 20% down, and poof of income or assets. • The rules got a bit “looser” in early 2000, and lenders seemed to make it easier to borrow money, even to borrowers less capable of paying back their loans. Sometimes, it doesn’t work out as planned.

8. TODAY… • We’ll talk about what happens when the “American Dream” of buying a home turns out to be nightmare.

9. Background Vocab • Borrower: The person who requests or takes out a loan. • Down payment: Also known as “money down,” an amount of money paid outright when a home is purchased. A typical amount is 20% of the price of the home, so the buyer takes out a loan on the other 80%. • Foreclosure: When a bank claims a property as their own because the borrower did not meet the terms of the agreement, such as making the payments.

10. Background Vocab • Home Value: What the house is worth, based on how other houses in the neighborhood are selling. It can go up or down. • Interest Rate: The percentage above the full amount of the loan the borrower is expected to pay. • Lender: The company, usually a bank or credit union, that offers the mortgage to a homebuyer.  

11. Background Vocab • Loan: Money lent to a homebuyer. It includes the price of the house, except for any money used as a down payment, plus the interest. • Mortgage: A loan to be used to buy property. • Underwater: When the amount left to pay on a mortgage exceeds the value of the home. • Refinance: To swap out your old loan with a new loan subject to new terms (interest rate, monthly payment, etc.)

12. REFINANCING • Many homeowners leading up to, and during the foreclosure crisis chose to refinance their homes. For borrowers who were struggling, this may have been done to reduce the monthly repayment amount (often for a longer term, contingent on interest rate differential and fees)

13. REFINANCING • For many homeowners, this was done to AVOID foreclosure. This means that the homeowners took out a new loan with the bank and agreed to NEW terms (interest rates, etc.) in order to be allowed to continue making payments on their home. The old loan was a thing of the past.

14. REFINANCING • Banks seem to be more willing to agree to refinancing when the amount homeowners would have to pay in the long term would be MORE under the new loan than under the old loan.

15. Moving On…. • While many who apply for mortgages are able to keep up with payments, without incident, there are instances when the buyer of a home can’t afford to keep up the payments. 

16. Foreclosure… • If a home is not paid for, banks are to notify residents that they will lose their homes, and staff at the bank is to review each file to confirm that they are entitled to foreclose.

17. Reasons for Foreclosure • Come up with a reason (s) why someone would miss their payments, or be unable to afford a full payment.  • Loss of a job • A need to take a lower paying job or part time job due to family responsibilities. • Increase in family size • Unexpected home-related expenses, such as maintenance, taxes, homeowner’s association fees, utilities

18. Reasons for Foreclosure • Loss of benefits, such as health insurance, due to the loss or “scaling back” of a full time position. • An “arm” or a balloon payment, meaning that the loan the individual or family was granted asked for small payments in the beginning, but larger payments later. • Unsuspecting buyers assuming a mortgage for which they were preapproved meant that they could afford to spend up to that amount on the home. • Illness or a disability that prevents the buyer from working. • The death of, or separation from, a person with whom you planned to share expenses. • Lack of understanding of the terms of the loan, such as how much money they would actually have to pay back

19. “A Bittersweet Homecoming”: • http://video.nytimes.com/video/2011/01/26/business/1248069591390/a-bittersweet-homecoming.html?ref=foreclosures • What should homeowners be entitled to when banks foreclose on their homes illegally?

20. “A Bittersweet Homecoming”: • There are numerous ways that the banks could have foreclosed illegally – this is just ONE example. Note, however, that not all bank foreclosures are illegal – many/most are completely legitimate. • Keep in mind that simply because a bank foreclosure is not illegal does not necessarily mean that the bank, when negotiating the initial mortgage OR refinancing the home, was being “fair” to the homeowner. • A lot of people were taken advantage of (by being able to take out loans/mortgages at rates that were beyond their means to pay), but their homes were still foreclosed on legitimately and legally.

21. Activists fighting back against foreclosure • http://www.pbs.org/newshour/bb/business/july-dec10/foreclosures_10-19.html

22. Activists fighting back against foreclosure • 1) Do you think these people/homeowners have a right to fight back against foreclosure? Why? • 2) What are the three steps that the City Life organizers use to fight back against the current foreclosure crisis? • The sword – Physical activism (do not leave the home) • The shield – Free legal help to drag out the process of foreclosure • The offer – Buy back the foreclosed house, then re-sell it at current market value to the homeowner

23. Today’s Assignment 12/17/2013 • Essay On Foreclosure • PFHS SITE • STAFF • Khatcheressian • Business Law • Foreclosure Assignment • 12 Font Ariel…include the hyperlink of your story.