Who is Responsible for the Home Foreclosure Crisis?

Was our government attempting to "spread the wealth" by making mortgages available to many who simply could not afford it or offering financing to those that exercised extremely bad judgment?

The New York Times has an article in today's paper entitled "After The House is Gone". The story describes the plight of several families that have lost their homes through foreclosure. The article claims that over one million people have lost their homes and another 1.5 million are in the foreclosure process.

Are these families typical of those who are having their homes placed in foreclosure? An analysis of each example may provide some insight into who is responsible for America's home foreclosure crisis.

In the first example, a couple with three children, who earned approximately $55,000 annually purchased a home for $85,000 in 2004. At 6% interest for a 30 year mortgage, their payments would be slightly over $500 per month. Taxes and insurance would bring the monthly payments to about $800 per month. Annual payments would be $9,600. If 25% of household income is dedicated to housing, they would need an annual income of $38,400 which they certainly had. In fact if they were frugal, it appears as if they could save a few dollars every month.

Unfortunately, the wife was laid off from her $35,000 a year job reducing their income to only $20,000 annually. What would you do under those circumstances? How about, get another job! At just $10 per hour, she could earn $20,000 per year and they would have sufficient funds to afford the mortgage and continue to live in their home.

However, in 2007, they decided to refinance their house and added $65,000 to their mortgage. That transaction meant that they were at the 25% limit for housing expenses and if anything drastic happened, they could be in foreclosure difficulty. There is no detailed list of what they did with the $65,000 except to state they paid $8000 for a bedroom set.

Well, the drastic did happen and their house was placed in foreclosure. Who is to blame for their circumstance?

In another example, a woman with two children, who had an income of over $100,000 dollars for several years purchased a house for $205,000. The article quotes a monthly mortgage expense of $1650. That would certainly include taxes and insurance as at 6% interest for a 30 year mortgage, the mortgage cost is only about $1230, with no down payment. She runs into difficulty in her job and quits, only to find she cannot replace her income. The result is home foreclosure. Who is responsible for her plight?

In yet another example, a couple refinances their home and adds $110,000 to their current $169,000 mortgage. They installed a backyard swimming pool. Does a swimming pool cost $110,000? They too added to the mortgage foreclosure statistics. Who is responsible for their circumstance?

There is a pattern developing in this analysis. The same theme is repeated in two other examples.

One can add to this story the fact that our government created much of this foreclosure crisis and the resultant financial crisis by enabling credit and lending to be extended to tens of thousands of people who simply could not afford to purchase and finance or refinace the home they bought.

I am among the vast majority of Americans that will ultimately fund this fiasco. It sure seems like the bad judgment on the part of many citizens coupled with the "spreading the wealth" philosophy of our government leaders is the root cause. They didn't call it "spreading the wealth" when high risk mortgages were financed by Freddie Mac and Fannie Mae, but isn't that what they were doing?

One can conclude that "spreading the wealth" really results in spreading bad judgment, spreading financial crisis and spreading debt that will ultimately be paid by vast majority of Americans who bear no responsibility for the cause.

In a few days, we will elect a president. One claims to advocate "spreading the wealth". Who will you chose?