Let’s Try Something New to Break “The Cycle”

An actual predatory lending case study to learn from and not repeat:
In 2006, a lender provided two mortgages for the purchase of a $650,000 house.

1st mortgage was a 10-yr. INTEREST ONLY loan with a 6½% interest rate and was an adjustable rate mortgage after 10-yrs.

2nd mortgage loan with a 9½% interest rate

The buyer only had to bring $15,000 to closing!!

In 2010, the owners lost their employment and needed to sell their house.
The appraisal was done on behalf of the lender working with a buyer. The appraisal for the home after 4-yrs. was $425,000, obviously, much less than the list price.
The appraisal was based on numerous foreclosed and short sales in the immediate neighborhood. This further depresses housing prices.

This is a “no win” for everyone involved. A foreclosure would result in this scenario. What happens?
The new appraisal and sales price sets a new benchmark for the neighborhood putting the remaining homes in a negative equity position – most likely. If the other homeowners do not need to sell, how long will it take for them to get their equity back?
So, the families in the neighborhood that purchased a similar home, employed, and making their payments will suffer due to the drop in price.

Owners proceeding toward foreclosure are essentially taken out of the housing market.

Municipalities will lose property tax revenues from lower assessed properties – but when will government change their property assessments? Or will they change or find another way to retain revenues?

A foreclosed house typically remains vacant for a period of time which causes further deterioration. In this case, the “sold” price would typically be less than the appraised value, again depressing prices.

I am certainly not privy to all of the actions taken by government nor smart enough to offer solutions. But, it just seems to me that the vicious cycle hasn’t been broken nor altered to any extent changing the dynamics of the cycle.

Without creating jobs, providing some sense of job security, or a robust economic recovery, this vicious cycle will continue. Anyone listening – anyone at all?