In a detailed report on the current state of the foreclosure crisis in the U.S., msnbc.com examines some of the issues currently troubling America’s real estate market and what these problems could mean for the future.

How the Foreclosure Crisis Started

During the real estate bubble, mortgage lenders eagerly underwrote home loans because credit was easy to come by. But:

• Many loans had adjustable rates, meaning that monthly payments would adjust (usually upward) after a certain period of time.
• These loans seemed like a good idea because home prices had risen steadily and people assumed they’d continue their upward climb. When the higher payments kicked in, many borrowers figured, they’d refinance or sell their home for a profit.
• The rising prices were part of a bubble. When it burst, home prices plummeted.
• Many borrowers were left owing more on a house than it was worth and unable to sell their homes, refinance or make monthly payments.
• The adjustable rate mortgages began resetting and many people’s monthly payments shot up.
• Layoffs began plaguing the country, meaning that many people lost their income, making difficult monthly payments impossible.
• Without making payments on their houses, many families found themselves forced to leave their homes because of mortgage foreclosure.
• The glut of houses on the market (both new and abandoned by foreclosure victims) mean that prices have dropped even lower.

Why Modification Programs Aren’t Working

Naturally, the government is aware of the foreclosure situation (it’s hard to ignore the 2.8 million citizens threatened with foreclosure last year, or the 3.5 million predicted for this year) and has taken steps to help homeowners. But, according to the report, many efforts have been sadly under-successful.

The Bush Administration’s HOPE Now fell far short of its stated goal of helping some one to two million Americans modify their mortgage loans, and the Obama Administration’s HAMP (Home Affordable Modification Program) has been only slightly more successful, it seems. Here’s why:

• Some of the criteria for qualifying for a home loan have not been made public, thus people whose applications for modification are rejected don’t know how to improve their chances.
• Foreclosure and modification proceedings are carried out by different groups – groups which often don’t communicate with each other.
• Many temporary modifications have been issued, but do not guarantee homeowners long-term solutions for their mortgage woes.
• Many lenders stand to make more money from moving forward with foreclosure than opting for a modification.

The article explores various facets of the effects this problem has had and continues to have on the American economy, and is worth a read. Meanwhile, if your home is in danger of foreclosure and a loan modification is not on the table, you may want to consider filing for Chapter 13 bankruptcy, which could at the least postpone foreclosure for several years.

Additional Resources

Report: Why Servicers Foreclose When They Should Modify (PDF)