The American Dream Of Homeownership

For many years, the idea that ones’ home being the largest investment was said as a complete sentence when in fact, it was only an incomplete sentence. Any duly licensed financial planner would finish that sentence by saying all investments are subject to market conditions, the value that investment could increase or decrease and other similar cautionary statements that their attorneys wrote to protect them. The American public only heard that their home was the largest investment and had never experienced, nor had their parents seen the value of their personal homes drop like they did in the past few years. They had never experienced the financial pain and although only a few years have passed, many have forgotten and are ready to jump right back into homeownership.

Too many Americans have fallen victim to the crisis that has become the norm for our citizens these days. Lenders no longer want to work with individuals who have gone through the foreclosure process and for many it is not only their homes they lose. Some have lost their jobs and/or families, others fall into a deep depression and worst of all some have taken their own lives.

America is seen as the land of opportunity in that there are endless possibilities for an individual. In this land of opportunity, Americans strive to obtain the ideal known as the American dream. The American Dream is seen as the accomplishment of an ambition achieved while challenged by adversity.1 Americans often associate this success with the ownership of a home. The home is not simply a place of basic protection; there is a much deeper connection to the individual. Ownership of a home grants freedom and security that establishes a sense permanency for the individual. In contrast, renting a living space possesses a semblance of instability and dependence.2 The desire to improve ones’ position in life inspires one to

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

Several years ago, many of us could not imagine mortgage meltdown ending. It seemed as if the foreclosures/short sales were increasing and the American dream of buying a home was decreasing. Many people felt hopeless and cheated when it came to the economy’s poor status due to the housing crash. Many lessons were learned from the collapse and although it may seem hard to believe, there were silver linings in the mistakes made during the mortgage meltdown. Today, real estate buyers are benefiting from the past mistakes and have more confidence in their home buying purchases.

The last five years have been a rollercoaster for the average American homeowner. I personally know many people who were unable to keep their homes. Most of the reasons were extenuating- loss of job, decline in business, death of family- ultimately resulting in no longer being able to afford the mortgage. Unfortunately there were some very irresponsible decisions that contributed to the foreclosure of homes, for example, financing huge second and third mortgages to pay for frivolous activities and items. With the last half decade of hard lessons learned for previous home owners many are looking to venture into the market again with some more creative financing options. Many sellers are turning to options such as rent-to-own or seller carrying the contract with a down payment as well as buyers borrowing against existing retirement and life insurance accounts.

The life that homeowners were accustomed to, the quiet enjoyment and peace of mind of homeownership suddenly became a nightmare. During this time America was faced with the weakest economic downturn it has experienced in more than eighty years. As the real estate market collapse was in high gear, most Americans were experiencing layoff from jobs. People were losing their jobs at an alarming rate and the unemployment rate hit double digits. Families were forced to downsize and cohabitant with families or be faced with the harsh reality of homelessness and living on the streets.

The foreclosure crisis, which tragically happened several years ago, stole away the homes from countless Americans and left them high and dry. These Americans were not even neglecting to pay for their mortgage on purpose; the economy took a drastic downfall and took all of those unshielded Americans with it. Now, these Americans are left with many questions that are unanswered – until now. They still have the chance to improve their credit, test out their dream home, and thrive in the current reasonable home prices and interest rates. All the potential buyer has to do is know where to find that information and how to use it. Now, it is time to explore those tempting options.

The family home has always been a major part of the American dream, but it had an even bigger role in the Great Recession. Under legislative pressure banks eased up on a lot of the loans that they gave out. According to Peicuti (2014), “In the 2000s, the deregulation of the financial system and development of the originate-to-distribute banking model led commercial banks to finance subprime mortgages” (p.7). It then goes on to lists several characteristics that these borrowers may have including, “relatively high default probability as evidenced by, for example, a credit bureau risk… bankruptcy in the last five years… debt-service-to-income ratio of 50 percent or greater” (p.7). All of this tells us the same story, these were risky loans to make. We’ve learned from class that the interest rate is an indicator of the amount of risk on an asset. These loans however were not properly assessed for the amount of risk on them. In short, the banks had taken on more risk than they

If there is one thing we have learned in the last decade, it’s that almost no one is immune from financial struggles. When the struggle is too much, sometimes it forces us to take drastic measures to survive and move forward in the wake of those struggles. When financial crisis hits we downsize, cutback, and in extreme cases walk away. We are not too far removed from “mortgage meltdown” that began in 2007. Since that time we have seen a significant increase in the amount of foreclosures, short sales, deed in lieu, cash for keys, and bankruptcies.

In order to prevent another housing crisis we must implement programs that would teach housing buyers and potential homeowners how to buy homes wisely because most potential homeowners are unsophisticated and do not know at what rate to buy homes and set personal guidelines for mortgages. The complexity of buying homes not only affected homeowners and home buyers but also confused sophisticated securities investors in that these securities investors sold MBS (Mortgage Backed Securities) at an excessive price range that the MBS should never had been sold at.

The 2008 mortgage crisis was preceded by a series of missteps and unfortunate circumstances culminating in a perfect storm that triggered the worst financial meltdown since the great depression. After experiencing an 87% increase in average home prices between January 2002 and mid –2006, the mortgage market steadily declined and the boom began to subside. Unfortunately, the boom soon became a bust and by the end of 2008, housing prices were about 25% below the peak level achieved in 2006. As a result liquidity and capital disappeared from the market. (Jeune Renay. Lessons Learned In The Aftermath Of The Mortgage Crisis). A period of unusually high home foreclosure rates that caused an impact on the economy is still some years later an unfolding story in many American cities. It was not just a subprime event, but a much broader phenomenon that was among the most notable economic events of recent years. This was the result of irresponsible buyers who borrowed much more than they could afford. Regardless of the cause, foreclosure was difficult for the individuals who experienced it. They simply were buyers who had not done their homework. Today is safe to say that home buying isn’t for everyone. Despite all that has been said and done about this crisis, one realizes a need to understand and discuss the lessons learned as well as determine silver linings drawn from the event which will more fully illustrate how buyers are benefiting today. The following paragraphs will explain

In 2007 the real estate market collapsed leaving homeowners doomed. The collapsed had a negative impact on the United States economy and it also had a negative impact on five million families nationwide. Today, the real estate and mortgage market has significantly improved. This improvement allowed previous homeowners to have a clean start. The situation of the market has changed and advanced since the collapse. The homeowners that were affected by the real estate and mortgage market collapse were known as boomerang buyers because most of the families are or were allowed a second chance. As a result of the collapse, there were many mistakes that are avoidable today as to lessons learned. The market crash was a devastation but over the years the silver linings began comforting the nation. Today, many boomerang buyers are benefiting from their past mistakes. Consequently, there were lessons learned,

“The events triggered the most serious financial crisis since the Great Depression” (Yeager 2). The early 2000’s economic crisis raised many legitimate questions about the failure of foreseeing the housing bubble and it’s collapse. Although there were many signs of the impending to come, the excitement of rising home prices caused a disregard. After the foreclosure crisis studies evaluated where the fault began and should be placed and determined that consumers, lenders, and government has an equal blame. Even though the real estate market collapse was a lesson in learning to adapt , predatory lending, overreaching, and failure of government policy is the main emphasis from the housing collapse because Wall Street banks took advantage of

The real estate and mortgage meltdown several years ago taught Americans many financial lessons. The first lesson learned after the meltdown is to not allow home buyers to borrow loans worth more than the value of their home. The second lesson is to not allow home buyers to qualify for larger loans based on a lower monthly payment obtained by the use of a variable interest rate loan. The third lesson is to require home buyers to have at least a five percent down payment on their home. The fourth lesson is to not let money be so easily available to people unlikely to pay back the loan.