There are a lot of reasons for people going into foreclosure. There was a significant number of foreclosures in the early days of this crisis from investors divesting themselves of assets that were valued less that the leveraged position the investor had in the property.
Many investors walked away from the property once they were "underwater". This created a downward pressure on the market.
Most of the investment properties were rental properties. Tenants who had faithfully made their rent were being thrown out the these foreclosures because the landlord had not paid the mortgage.
At the same time, people who had received mortgages expecting to be able to refinance because of increased equity and improved credit scores before the expected rate increases were caught in a situation where equity was not advancing and a recessions was dragging down their improved employment opportunities.
Mortgage brokers, banks and investment houses were pushing more and more creative(risky) mortgage products. Underwriting virtually went out of existence as banks wanted more market share at any cost. These folks are the experts on risk and they didn't care one bit about whether the loan would hold or not. I know from personal experience that the average consumer has no idea what is going on with this stuff. If you tell them this is an amount they can afford, they're apt to believe you. Why shouldn't they. You represent the guys lending the money, you should be looking out for that money right? Wrong - most of these guys up and down the line were looking out for their commissions and were making sure they made their money before the whole thing blew up.
If you think this situation grew out of the normal, establish, conservative business practices of the mortgage industry of old - you are sadly mistaken. I am fifty years old. I was a real estate agent 20 years ago. I was trained to pre-qualify(pre-underwrite) buyers for every type of mortgage in existence then. The practices that were in place for the last 6 or 7 years defied every bit of underwriting wisdom since the end of WWII. You didn't need to be a Nobel Laureate to know for certain it would, if not stopped, lead to a disaster. If anyone says they didn't see it coming they are lying, an idiot, or so self delusional they should be removed from any position of authority and not allow to ever run heavy equipment. I would say that the whole bunch in the over-class should be charged with criminal negligence at a minimum.
There are a good number of people who are elected and otherwise employed to see that the industry is run in a responsible manor. Yes there is regulation. There is also a fiduciary obligation of professionals to their clients and customers. All of this was throw away and these folks knew they were out of line.
The banks are being bailed out and the little guy is paying the dearest price - being thrown out on the street. There are so many reasons why this bail out has to happen. As reprehensible the behavior of many of the participants is. There are as many reason for seeing to it that the little guy in all this is bailed out to a degree as well. It has a lot to do with maintaining the credit worthiness of the country to foreign investors. Replacing the lost wealth of the middle class.
I see a lot of arm chair philosophy spewing about this thread. These are the same discussions people were having in the 30's. Are problems are practical problems with completely practical solutions. The main problem is really about maintaining financial viability of the individual up through the economy. The solutions will be part socialist and part capitalist, but all democratic. If we can't do that, we will revisit the solutions to the last great calamity. Fascism, Communism, civil war, anarchy(the bad kind) Regional war.
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