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The Foreclosure Crisis: Causes and Solutions. American Federation of Labor and Congress of Industrial Organizations. The housing market bubble. Source: S&P/Case- Shiller Home Price Indices. Unemployment is the leading cause of foreclosure. Source: Congressional Oversight Panel, March 2011.
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The Foreclosure Crisis:Causes and Solutions American Federation of Labor and Congress of Industrial Organizations
The housing market bubble • Source: S&P/Case-Shiller Home Price Indices
Unemployment is the leading cause of foreclosure Source: Congressional Oversight Panel, March 2011
Homeowners are not to blame! The foreclosure crisis was caused by: • Wall Street Greed • Mortgage backed securities and subprime lending • Regulatory Failures • Lack of government regulation of the financial sector • Unstable Economy • Wages stagnated leading to greater household debt
Foreclosure rate heat map Source: RealtyTrac, April 2011
Disproportionate impact on communities of color • Reverse redlining - Banks sold subprime loans to homeowners who qualified for prime loans • Subprime loans are more at risk - 21.26 percent of subprime fixed loans and 25.32 percent for subprime adjustable rate loans are delinquent. • What started as a subprime crisis now affects all Americans - 63 percent of all foreclosures are now fixed prime loans.
Advice for Homeowners: Tip #1: Start Early • The sooner you take action, the more likely you will be able to save your home. • Homeowners should take action when they first have trouble paying their mortgage • Help may be available even if you are still current on your mortgage payments • Do not wait for a foreclosure filing before seeking help – act now!
Advice for Homeowners:Tip #2: Seek Help • Seek help – you have a greater chance of success if you have an expert on your side • Work with a non-profit housing counselor who is familiar with loan modifications • Free help is available from government-qualified housing counselors • Be wary of scams offering help for a fee
Advice for Homeowners:Tip #3: Stick With It • The mortgage modification process can take a long time to complete • Keep copies - the bank may ask for the same document multiple times • Continue to seek a modification even if you also receive a foreclosure notice • Stay in contact with your bank and HUD approved housing counselor
Three options for homeowners who are at risk of foreclosure • Ask for a short-sale or deed-in-lieu of foreclosure • Occupy home payment free during foreclosure • Negotiate a mortgage modification with the bank
Ask for a short-sale or deed-in-lieu of foreclosure • Short-sale: you find a buyer for the home • Deed-in-lieu: you give the bank the home • The bank may forgive your unpaid loan principal • Hurts your credit score and you have to move
Occupy your home payment free during foreclosure • Banks often wait 3-6 months to initiate a foreclosure • Foreclosure takes 3-12 months (varies by state) • Homeowners can save cash for the future • Hurts your credit score and you have to move
Negotiate a mortgage modification with the bank • The goal of a mortgage modification is to reduce the monthly payment to an affordable level • Banks and mortgage investors have an incentive to avoid costly foreclosures • Getting a modification usually requires showing that the homeowner has an economic hardship • Homeowner keeps their home
Different types of mortgage modifications are available • Principal Forgiveness • Interest Rate Reduction • Forbearance • Term Extension • Repayment Plan Most Effective Least Effective
Finding a housing counselor • Be wary of scams asking for money • Free home counseling is available to homeowners facing foreclosure • U.S. Housing and Urban Development provides a list of government-approved counselors • www.makinghomeaffordable.gov Hotline Number: (888) 995-HOPE
Finding a housing counselor www.naca.com (888) 404-6222 www.ahcoa.org (888) 409-3557 www.unionplus.org (866) 490-5361