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The Foreclosure Crisis: Causes, Market Trends, and Responses

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16 February 2010    
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The Foreclosure Crisis: Causes, Market Trends, and Responses
Covershot of Report to Congress on the Root Causes of the Foreclosure CrisisThe Housing and Economic Recovery Act of 2008 directed HUD to produce preliminary and final reports on the causes of the foreclosure crisis. Fulfilling this mandate, HUD Secretary Shaun Donovan has presented to Congress the final report, which includes a study of root causes of the current foreclosure crisis, data and analysis of trends in the market, and policy responses and recommended actions to both mitigate the current crisis and help prevent similar crises from occurring in the future.
This analysis of the foreclosure crisis expands on the preliminary findings presented to Congress in April 2009, and is presented in the Report to Congress on the Root Causes of the Foreclosure Crisis.
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Key Findings

  • Significant differences exist in the extent of the crisis across market areas.


  • The sharp rise in mortgage delinquencies and foreclosures is largely the result of rapid growth in loans with a high risk of default due both to the loan terms and to loosened underwriting controls and standards.


  • The rapid increase in housing prices in large swaths of the country through 2006 was possibly the most important ingredient that fostered a surge in risky lending.


  • Growth in no- and low-documentation loans and appraisal misrepresentations appear highly related to increased incidence of fraud.


  • In contrast to the dramatic changes in the structure of the mortgage market during the 1990s, little change in regulatory oversight of mortgage lending activity occurred.


  • The benefits of the GSE housing goals meant to increase homeownership rates among low-income and minority households were largely realized before the crisis.



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