To Avoid Foreclosures Low-Income Borrowers Need Assistance after Buying the House
Posted on November 25, 2008
Filed Under Repo Homes | 1 Comment
Research shows that to avoid future foreclosures, low-income borrowers need assistance even after the house has been bought. Studies have shown that more harm is being done than good to allow low-income individuals to buy house and leave them on their own. This is the view of economist Tracy Smith of Kansas State University. She is joined by Marc Smith of DePual University (Institute of Housing Studies). They are publishing their findings in the Journal of Regional Science.
If financially weak borrowers take a mortgage loan to move into a house they cannot afford, foreclosure becomes inevitable. They have to surrender it to the lender and hunt around for alternative rented accommodation.
Turner opined, “moving vulnerable renters into homeownership without post-purchase support wastes tax dollars as well as creates great hardships for these new homeowners who lose their homes. Our research sheds light on homeowner sustainability and the need for post-purchase support for vulnerable households. It suggests that past homeownership policies are in part contributing to the current home foreclosure crisis.”
The studies of Turner and Smith show that low-income house owners are largely responsible for this foreclosure crisis. Studies covering the years from 1970 to 2005 show that it is those with low-income who are the ones to have lost the most number of houses. Till 1997 Hispanic householders had the high exit rates but not since then. The gap between blacks and whites losing house widened from 1997. It could relate to the policies followed from 1990 that encouraged minorities to own property. But in the long term it could not be sustained taking into account the scope of their earnings.
Turner said, “Policy initiatives made resources available to move renters into owning although they could not own without assistance, and these initiative failed to provide post-homeownership counseling or support. As a result, renters who became homeowners though relatively easy entry conditions could not sustain homeownership.”
Turner claims that their research is the first of its kind in this field. The house ownership gap is because prior to 1997 there were few blacks who owned houses. House ownership offers many benefits, which the blacks and Hispanics miss out as renters. Thus Turner stressed that to allow the weaker groups to own houses it is imperative to understand why they cannot keep it and slip into foreclosure and drag down the whole socio-economic structure with it.
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[...] Hammond does not have as yet any alternative plans ready at hand if the talks for avoiding foreclosure fail and the Mission and Salvation Army are compelled to move out. He said, “It’s in the back [...]