Foreclosure

Foreclosure is caused by many variables. Some of these include bad loans, low demand for houses, and family issues. Subprime and ARM loans are examples of bad loans since they are difficult to pay off. A low demand for houses makes it harder for people to sell houses that they can't afford. Lastly, family issues such as divorce, unemployment, death, and illness make it more difficult for families to afford their houses.

Bad loans. Imagine being an unemployed citizen and wanting a million dollar house. Someone gives you a loan so that you can buy the house even though they know that you won't be able to pay off the loan. This is a subprime loan. These have caused many people to go into foreclosure since they can't pay off the loans they're given. Another type of bad loan is an ARM (adjustable rate mortgage) loan. These are loans that allow you to pay a low amount of money for a period of time before the loan adjusts to a much higher rate. When they were signing the documents, many of the borrowers, knew that they would not be able to make the payments, but they were assured by loan officers that property values were always increasing so they could just sell their property before the reset. Since these people could not pay off the loan, many were pushed into foreclosure and they lost their houses.

Low demand for houses. Some people who own houses just simply have a hard time paying the bills. They might have a large family to feed or they might be a single parent with a part time job. Whatever the reason, they need to sell their house since they can't afford to have it anymore. Although, since there are not many people looking for houses in the housing market, it's difficult for them to sell their house. They try to sell it without much luck and eventually they just can't make the payments anymore and the house is taken by the bank and it becomes.... foreclosed. This problem has caused many money deficient people to lose their homes.

Family Issues. There are unpleasant events that happen in a family that can make you become a candidate for foreclosure. Divorce:   when a married couple divorces they are sometimes required to sell whatever is shared between the two which usually includes the house in which they live. In this housing market it is very hard for anyone to sell their house so if the couple does not sell their house by a certain deadline, it becomes foreclosed. Illness and death: Medical bills can hurt a family greatly. If the family member that is ill or dead was the money maker of the family then other family members are forced to find work to keep their family going. This can be very difficult and a family can run behind on their house payments very easily. This gives them a straight road right to foreclosure. Unemployment: Without an income it is almost impossible to keep a house. Imagine owning a house, but not having any money to pay for it. This is also a straight road to foreclosure.

With all of these foreclosures what is the government doing to help? Here is President Obama's plan. First, he wants an estimated 4 to 5 million currently ineligible homeowners to refinance their mortgage rate. Since many homeowners owe more on their mortgages than their homes are worth, this will help them come out from being "underwater". Second, President Obama says that they will create new incentives so that lenders and borrowers can modify the terms of sub-prime loans. These loans only make up 12% of all mortgages, but account for nearly half of all foreclosures. So if lenders and borrowers can work together to agree on rates that the borrower can afford then more people will be able to keep their homes. Third, he will work hard to keep mortgage rates low for millions of middle class families looking to secure new mortgages. This will garantee loans and keep mortgage rates affordable for many households. Fourth, he will use a wide range of reforms to help keep families in their homes and avoid foreclosure. His administration will continue to support changing the rules of bankruptcy to allow judges to lower home mortgages to their fair market value, as long as borrowers pay their debts under a court controlled plan. We will see this plan in action over President Obama's four years in office.