The housing crisis resulted in a great deal of finger pointing. Politicians blamed Wall Street, Wall Street blamed government, and each political party blamed the other political party. What gets lost in the drama of political theater is that real people signed mortgages that could not be afforded. Somewhere in the buck-passing, we are left to wonder what happened and how financial consumers can avoid future foreclosure catastrophes.
A paper published by the St. Louis Fed, titled "The Foreclosure Crisis in 2008: Predatory Lending or Household Overreaching?" gives us an idea of the financial state of the average household in foreclosure during the housing crisis. The paper compiled characteristics of debtors in foreclosure during the recession and classified these struggling households using PersonicX Life Stage Segmentation, a classification that divides households into 21 groups based on socio-economics, marital status, and household size. Researchers found a number of trends in the collected data worth taking note:
Generation X was Most to Blame. The largest percentage of households in foreclosure belonged to those in Generation X--in particular, Gen-Xers who had high average household income ($59,500) and years of education (14.8 years). It seems counter intuitive that a well-educated and affluent group of families would lead the foreclosure charge. Yet this group of households made up more than 1 in 10 foreclosures. How do affluent families end up in foreclosure?
Luckily, the researchers provided statistics about the types of mortgages that were in foreclosure.
Mortgages with High Loan-to-Value ..