Chapter Six

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Foreclosure Happens

The New American Dream – Nightmare For The Middle Class

Until recent times, foreclosure was a phenomenon mostly affecting uneducated blue collar
workers, people earning the lowest incomes among all income groups. Like all American’s
though, they pursued the “American Dream” of home ownership and worked hard to support
their families and provide for a better future for their kids. Before the collapse of American
manufacturing, these folks had a ladder up, a means to attain that dream. Like the middle
class, they aspired to own their own homes, and many who had an upwardly-mobile job at a
good company could come up with the necessary down payment and have confidence they
could pay the mortgage.
In any economic contraction, these folks are the first to be affected through layoffs and
outsourcing. If the economic contraction is prolonged, foreclosures among this economic
group skyrockets. Because these folks experience rates of foreclosure greater than that of
the middle class, they are the most at risk of all homeowners to lose the investment in their
homes.Then too, these folks are the most likely to have so-called subprime mortgage loans
– loans having high interest rates and PMI additions. Because their jobs are the first to
affected by attrition, they have been blamed for the cause of their own financial hardship in
facing foreclosures rates that are higher than average. Some political pundits make them the
object of derision, accusing them of purchasing homes that they could not afford. Of course,
scapegoating this group of people is too easy, and those making the accusations usually
have a political objective in mind. In reality though, the high foreclosure rates among this
group is not because they are lazy or that they could not afford their mortgages. The real
reason is that they lost their jobs or were laid off in a shrinking economy. Since many of
these folks worked in the manufacturing industries, those jobs dwindled and the good
salaries that they provided have not been replaced.
In the early years of the housing crisis, foreclosure was seen mostly among those lower
income workers – folks saddled with the most toxic subprime products with high interest
rates. No alarm bells were set off as long as foreclosures didn’t affect the middle class. As
the economic crisis spread so did foreclosure, reaching middle class Americans with
ordinary mortgages. The absence of good paying jobs has affected those folks higher up the
socio-economic ladder who have also been hit with hard economic times. For them, the
dream has turned into a nightmare.
It Can’t Happen To Me
The double whammy of structural economic shift combined with prolonged cyclical downturn
has caught many formerly comfortable middle class Americans off-guard. Unfamiliar with
dealing with shifting job patterns, they are like a deer in the headlights – unable to react in
the face of oncoming disaster. Even owners of long-term previously successful businesses
have been caught up in the foreclosure dilemma. Since the year
2000 alone, 63,000 American manufacturing companies have
closed their doors. Many of these firms were well-established, with
a long history of successful operations. How do you think the
owners of these firms dealt with the fact that their markets were
shrinking? I’ve spoken with a few, and for the most part the
consensus was that they were waiting for the economy to turn
around not realizing the restructuring of manufacturing globally. A
few were able to successfully segue into new lines of business, but
most simply ran out of money and had to close their doors. Not only
were the employees affected but also the owners too. Because they were successful over
many years, they never thought that they would have any problem paying the mortgage but
as their companies dissolved their personal financial circumstances declined as well. As
their incomes evaporated they drew from their savings to pay everyday expenses, including
mortgage payments, ultimately drawing down from their retirement savings as well.
Eventually they couldn’t meet their mortgage payments, and their homes (we’re talking
about homes of people who considered themselves middle-class) went into foreclosure.

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