The Dirty Little Secrets of America’s Foreclosure Crisis

The little known causes of current foreclosure crisis

The current Great Recession is unique in world history because it BEGAN with high levels of foreclosures in the Southeastern United States.  In the past, the beginnings of recessions and depressions have been landmarked by the sudden collapse of stock markets.   Wall Street appeared to be thriving for almost two years, while a collapse of the real estate market spread across the United States.  There was no response by the Bush Administration and Congress until several Wall Street financial institutions collapsed.  For several months in late 2008 and much of 2009, it appeared that the world’s financial institutions would also collapse.  The economies of several nations are still on precarious financial cliffs.

In many areas of the United States, construction has been almost non-existent since 2008.  Several million Americans employed by the construction industry have NEVER been listed with the unemployed, because they were owners of small professional firms or independent contractors.   The Department of Commerce defines unemployment as those persons, who have applied for unemployment benefits.  This is one reason that the Bush Administration was surprised by the sudden financial collapse of Wall Street.  There were massive levels of unemployment the previous year, not recorded by the Department of Labor. The high levels of unemployment in several regions was initially invisible to the federal bureaucrats inside the Beltway.

Mortgage bankers found ways to bypass loan modification programs

The laws passed by Congress that were intended to stem the tide of foreclosures were essentially based on the assumption that America’s financial industry wanted to preserve the nation’s commitment to home ownership.  That is the basic fallacy of the legislation.  The mortgage banking industry, for the most part is motivated by maximizing its profits and salaries while paying substantial dividends to its investors.  Congress did not include adequate enforcement of the law.  The medium and small mortgage companies were out of range of the Obama Administration’s “radar” and therefore, did what they pleased.

This writer’s experience with the loan modification appears to be typical.  The first application was “misplaced” and never processed.   The second application was declined because my mortgage payments were current.  The third application was not acted on for three months, and then declined because I was a self-employed architect.  I had a signed contract with a municipal government that would have paid commissions sufficient to cover all my living expenses for 10 months.  The mortgage company stated that its policy was that future professional income could not be counted as income.  This was in violation of federal law, but no one in HUD would enforce the law. 

My house was foreclosed before I could begin the large project. The attorneys involved in my foreclosure were paid by the American tax payers, four times what I owed in back mortgage payments for the modest house. The politically influential mortgage industry has received billions of dollars of income from the taxpayers as a result of the massive level of foreclosures in our nation.  The primary financial incentive for mortgage bankers is to unload any marginal loans as fast as possible so they can receive their “foreclosure bonus.”  That is why the loan mitigation program has not been effective.

Continue reading on The dirty little secrets of America’s foreclosure crisis – National Architecture & Design |