What Triggered The Foreclosure Crisis?

November 25th, 2008 | Tags: Foreclosure Crisis

With the foreclosure storm still raging and none of the measures showing any tangible results everyone – from pundits to any Tom, Dick or Harry has something to say as to what triggered the foreclosure crisis? The result of this crisis has been a sharp fall in the property market followed by a deep slump in the economy.

There is no one answer to the question. The more answers roll in the better will the ordinary American be able to weigh the matter and find a solution to the foreclosure crisis.

The most common cited cause is that voracity and corruption of almost all in the mortgage and real estate world triggered the crisis. Lower level workers were motivated by greed, appraisers over valued the houses, realtors toed their line in listing high prices and loan officers sanctioned mortgages at high value – much above what the property was worth. The motivating factor was high commissions.

The borrowers too had a part to play. They made false statements about their income knowing fully well they could not afford in the long run the houses they were trying to own. Banks sanctioned loans with teaser rates knowing that when the rates increased the borrowers would never be able to comply. All this led to a housing boom with countless houses being sold to those who could never afford it.

Coupled with this geopolitical reasons crept in. Oil and gas prices began to rise while concern arose about limited energy supplies trying to cope with increasing demand for it from developing and emerging countries. Food prices began to rise because of agriculture being dependent on oil supply and a chain reaction set in.

Meanwhile people that had been fed on a consumer culture had no savings to fall back on when days began to get cloudy. The ordinary citizen just did not know how to budget his or her income so as to survive.

Another reason for the foreclosure related crisis is the falling dollar. It decreased the buying power of the American and made imported goods costlier. The situation worsened with the federal government borrowing money from other countries like China and some in the Middle East. This resulted in further devaluation of the dollar.

The Congress resorted to the inevitable when it saw that there were not enough funds to meet budgetary requirement – it began to print money. With the dollar becoming as cheap as confetti the ordinary man was further cheated.