Housing Crisis of 2008

Housing Crisis of 2008

Business Law
Final Paper

Starting in 2008 the housing market in the United States became in a great state of ruin.   Many homeowners found themselves owing much more than they could not only afford but also owning much more than their titled property was worth.   The devastation in the housing market created the Housing and Recovery Act of 2008.  This act was to enable government and private funders the ability to work with homeowners to reduce their rates and enable them to stay in their homes.

Before the Housing and Recovery Act there was a gray area were lenders could offer homeowners a way to refinance their home mortgages to pay off their others debts and even get cash back up to 110% of the value of their home and not have to provide any proof of income.   Now just imagine, you are already struggling to pay your bills and someone contacts you to say that all of your debt can be “consolidated “ into one loan and you may even get some cash back.  Very tempting for people struggling to meet day to day obligations, so tempting that many people took advantage of these offers, without any type of legal representation and without much knowledge of what they were actually doing.

Many homeowners found themselves almost two years later with an adjustable rate mortgage about to rise from  around 5% to anywhere upwards to 10% over the next few years making their mortgage unaffordable and many people lost their homes and had nowhere to turn anymore as their credit was also now ruined.

An article on CNN reported that a total of 861,664 families lost their homes to foreclosure last year, according to RealtyTrac. There were more than 3.1 million foreclosure filings issued during 2008, which means that one of every 54 households received a notice last year.  This did not just effect the people that could not afford their homes anymore, it also injurd homeowners that could afford their homes.  The crisis drove property values down making it hard for homeowners to sell their property as they lost valuable equity they had earned over the years.  These events made it clear there was a need of Government interaction to help homeowners in a time of need.  

The high demand for government help still left many Americans with the thought of why should the government help these individuals when they had to know they were borrowing way more than they could afford.  The homeowners are legally bound by their contracts.  In order to hold title to a property you must legally sign written contracts explaining the details of the loan. These contracts are called the Note, Mortgage Deed, Settlement Statement and Truth in lending.    The main problem was that the homeowners only looked at the present and not the future, many did not understand the truth in lending and many more did not really grasp the fact that their monthly mortgage payment could double in the few years.