Monday, October 27, 2008

Making sense of the foreclosure crisis

Already, 23 percent of homeowners with a mortgage owe more on their loans than their homes are worth, and that figure is expected to rise to 28 percent by this time next year, according to Moody's
clipped from
Maria Martinez looks over mortgage paperwork Wednesday, Oct. 22, 2008, at her home in Stockton, Calif. (AP Photo/Ben Margot)
WASHINGTON (AP) -- Each day from July through September, more than 2,700 Americans lost their homes in foreclosure.

So why is the foreclosure crisis so hard to fix?

There are five main reasons:

-- Crashing home prices:

A massive speculative bubble in housing prices caused millions of Americans to think of their homes as an investment, rather than a place to live.

-- Investor speculation:

Investors purchased one of every five homes last year, and almost one of every three when the market peaked in 2005, according to the Realtors trade group.

-- Complex investments:

"By the time it defaults, it's somebody else's headache," said Barry Ritholtz, CEO of research firm FusionIQ.

-- Job losses:

The No. 1 reason people fall behind on their mortgage is loss of a job, or some source of income, perhaps from a divorce or death of a spouse. If a borrower is unemployed, lenders don't have many options but foreclosure.

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