It is true that some homeowners have purchased homes that were out of their range. Some mortgage companies in the subprime market have taken advantage of deregulations within the industry. That is not the complete story and only accounts for less than 30% of what is currently in foreclosure or default.
Jobs are necessary for people to earn money to pay for their homes. When one looses their job it affects more than just there lifestyle, it affects everyone to some degree or another.
Do not be fooled in the media hyped propaganda, that it was the mortgage industry that blew it all up.
For the last 3-4 years, there has been a steady stream of job loss in this country. Some of these losses are due to downsizing of companies and sending jobs overseas for cheaper labor. It is not just the auto industry that has sent jobs overseas, many others have followed suit.
Let me illustrate what happens when a person looses their job. The first thing is that they go to unemployment to file a claim. The next they start the tedious job of looking for work. The average time it has taken as per reports from the media is anywhere between 4.5 to 6 months or more to get another job.
Here is a person who is looking for work and the majority of employers evaluate, how long that person has been out of work and are their skills up to date. The theme of most employers if that person has been out of work too long, then they most likely will pass them up. If they are hired, usually it is for less money than there original salary that they made from there past job.
In the interim of time, unless that person has 6 months worth of money saved then they will be late on payments and may not be able to pay there mortgage in part or in full. They may be forced into bankruptcy on their credit cards. This obviously affects their credit and affects their employment, since credit in a majority of cases is also viewed as a qualification.
Now if you have one person, no longer able to make payments for basic expenses, it destroys their credit not to mention their self-esteem. Realize that this does effect their consumption on food, utilities and travel.
At these times with high cost of gas and basic utilities, it pushes the individual reduce the use of these most basic of needs. Though unemployment can assist some, it generally is insufficient to pay for all the basic bills, especially rent or mortgages.
Think about a homeowner who has to pay the homeowner insurance, mortgage, and car payments, car insurance not to mention health insurance. Investment in a 401K or Ira ceases and possible borrowing from these retirement account if one is lucky to have one, will drive them further into indebtedness.
The job loss influences the microeconomics of businesses that surround the level of earnings for this individual. Let us add to that those defaults on credit accounts of which this individual will be harassed by collectors. Now, let us add millions of Americans out of work. It is not just the blue-collar worker it also includes the white-collar worker. The combined incomes support a myriad of businesses from real estate to the mom and pop store down the block.
I recall my father who had bought a grocery store in the Bronx. About five months after the purchase 5 buildings in the neighborhood where condemned, this forced over 1000 people out of the area. The result was a $ 500.00 reduction in sales per day!
If you do the math, that is a decrease of $ 180,000.00 in business. My father then had to buy less inventory from the wholesalers, which affects their profit margins. The decrease in profit margins from the wholesaler had to adjust there wholesale purchases. Realize that this simple shift affected a chain of other businesses surrounding one action from the city.
This of course led to my father letting go of help in the store. He could no longer afford an employee; it took 3 years of working on his own with family helping out as they could, to finally hiring someone for relief.
Now when we turn into the bigger picture, that view of macroeconomics and expand to millions of people, this is quit an effect. If we take a view that the average person makes about $ 20,000 per year and we multiply that by about 14 million jobless, we arrive at $ 280 billion dollars out of circulation.
This affects all Wall Street and Main Street. Savings, Investment, Utilities, Mortgage, Apartment Owners, Retail facilities are all affected. Compound this with falling off the tax roles of the cities, states and federal government and you have a crisis.
Home values will continue to decline until this hole is filled. The notion that home values will return once the inventory of already defaulted properties decreases is faulty at best. The reason is that the inventories of defaults will not be reduced until jobs are restored once again. I have watched my home value drop from 425K to 217K and it continues to decline in value.
The only way to stop the downturn is to freeze all default properties for the next at least 6 months until people can get back on their feet. There is just no other way. If you want even more of a crisis, keep the foreclosures going and the problem becomes the homeless and major increases in crime.
In my own community, I have seen many businesses close. Furniture businesses, small video rentals, and even caf?'s have closed their doors. This is why the banking and financial institutions are in trouble. Giving them more money to loan homeowners is not a solution. Banks are now raising their standards to qualify for a mortgage. The current homeowner may not be able to meet the new requirements, which does nothing for a refinance.
Credit card companies are raising their interest rates and are lowering the credit lines for most card holders if not canceling their card altogether. The credit freeze continues while the card companies will enjoy the bail out money.
Investing in new technologies, energy and other alternatives will bring about more job stability. Working on Infrastructures from roads to fixing schools will bring about more stimulation to the economy at large then just bailing out failing companies.
I find it odd that the same companies that are being bailed out are still paying high compensation to their executives. These CEO's should at least make the gesture of cutting 20% of their executive pay to help keep personnel.
This problem was caused by the need of greed. The larger companies are always accountable to their stockholders. There ability to ship jobs overseas for cheap labor increases their bottom line. CEO's enjoy a blessed life with golden parachutes. The average American worker usually has only what they earn and that is it.
I have no problem with competitiveness. Corporations should do what they can to make their bottom line profitable. That is a responsible behavior. Yet, that is not what we are seeing. What we see is many jobs going overseas or being eliminated altogether, without retraining or assisting individuals for new gainful employment.
Greed has replaced social responsibility. The deficit has risen and government has abandoned its responsibility to the American public. The elite in government will not recognize any problem until it hits home.
Americans are much smarter than this past administration credits them. These current elections have given the new administration a mandate, to stop the bleeding and bring us back home to the America we know and love.
We are still that great experiment that was created many years ago. We are the creative and the most blessed country in resources and innovation. Let us put that to use and bring back the prosperity that we all truly deserve.
John Tebar Certified Life Coach, author and entrepreneur sign up for Ezine at http://holisticlifeplanningandresearch.com
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