Hello friends, I am looking for any advice I can get. This is the last paper I am writing for this class and it is worth a large portion of my grade, so I desperately need to do well on this. Thank you in advance for all the help.
Assignment: You must research a problem in your community or a nearby community. You must do the research by investigating with interviews, surveys, and looking through current material or stories about the problem. Do not solve the problem; just investigate and uncover the truth like a news reporter. You must present the complexity of the problem by defining the problem, explaining how extensive the problem is, and giving both examples and statistics related to the problem to illustrate its severity. This project should be about five to six pages in length. Also, you must have a minimum of five sources. This research must be done in the MLA style. The assignment must have a Works Cited Page.
Economic Crisis in Clinton Missouri
The United States housing market, long considered vulnerable by many economists, is currently suffering a serious collapse in many regions throughout the country. This housing market collapse has sent our country into a severe recession that some economists fear will turn into a depression. Stock prices have plummeted, housing prices are declining, credit is becoming harder to find, and many big corporations are on the verge bankruptcy. Most of the news surrounding this crisis has been focused on big business and the nation as a whole, therefore we rarely hear about the hardships of those struggling to get by in small communities. Clinton, Missouri is a small community like many others that is feeling the devastating effects of the economic crisis.
The combination of artificially low interest rates, excessive credit availability, and subprime mortgages was the root cause of the housing bubble and its subsequent burst. These subprime loans were given to borrowers who had imperfect credit, and many times these loans involved no down payments, negative amortization, or limited documentation of income. Reckless lending practices like this resulted in unprecedentedly high rates of default, which essentially drove housing prices down and weakened the financial system of our country (Wallison, Pinto). These policies created the conditions by which tens of trillions of dollars were lent without the slightest regard for risk. The loans, in turn, became the catalyst for the collapse of a structurally weak economy. Put simply, the easiest buyer to sell a product to for more than it is worth is one who has not saved up a down payment, does not have good financial skills, and has blemished credit. These are also the riskiest borrowers to lend money to, and many of them are now struggling to pay back these loans. Taking advantage of people like this became a common practice for many banks during the housing market's boom period.
However, not all banks are responsible for these predatory lending practices, and many small town banks avoided subprime loans altogether. For example, Hawthorn Bank in Clinton avoided irresponsible lending all entirely, which enabled them to circumvent much of the financial trouble that other banks are facing. Hawthorn Bank has not seen a dramatic increase in the foreclosure rate on their loans or a decrease in their ability to give credit to responsible borrowers. According to Andrew Englehart, a residential loan officer at Hawthorn Bank, the bank has been able to do this because they only make loans to people who have a qualifying credit score, proof of income, and an adequate down payment. Responsible lending such as this has enabled many small-town banks to survive the financial crisis better than some of the other banks that engaged in predatory lending.
The local banking industry appears to have escaped some of the pain caused by the housing collapse, but the same cannot be said for everyone in Clinton. James Keck, the Henry County assessor, reports that land transfers are down 28 percent from the previous year. Furthermore, according to Becky S. Raysik, the recorder of deeds for Henry County, the number of foreclosures in Clinton, Missouri has increased almost 10 percent since last year and, with three months remaining, those numbers are likely to increase. The main culprits behind the housing collapse are the predatory lenders that gave loans to people who should not have been considered qualified borrowers. These banks are being foreclosed on at an alarming rate, because the borrowers simply could not afford the loans in the first place. Almost 40 percent of all U.S. mortgages consist of the low quality ones know as subprime or Alt-A loans (Wallison, Pinto). As more and more people struggle to make it in this stressed economy, the foreclosure rate is likely to continue to go up in Clinton and other communities as well.
Unfortunately, all these foreclosures are finding their way into a struggling housing market, and this is making things even worse for individuals trying to escape foreclosure by selling their homes. According to Charlene Bishop, a local real estate agent in Clinton, house sells are down 32 percent from the previous year, even though the number of houses on the market has risen dramatically. With more and more houses being added to the market every day and fewer people looking to buy, home prices are dropping as well. As we all know, any time supply goes up and demand goes down, prices fall. This fall in prices is good for the buyer, but the seller is faced with a tremendous loss of equity. Many houses are selling for a fraction of what they were purchased for just a few years ago. This loss of equity accounts for major financial losses for many individuals throughout this community and the country as a whole. For the average person, a home is the biggest purchase they make, and many people who thought they had a substantial net worth are finding that all that money has simply vanished over the last year. Many of these people are even faced with the reality that they now owe more on their house than what they can sell it for.
Ms. Bishop also said that houses were much easier to sell when credit was readily available. Things were also made easier when many houses were appraised over the asking price. This meant that no down payment was required, since there was already enough equity in the home at the time of purchase. Ms. Bishop says that the current higher lending standards are forcing her to turn away people who do not qualify, even though they would have qualified for the exact same home loan a year ago. People who come in with blemished credit and no money saved up for a down payment are not as easily accepted by lenders as they were in the past.
Home sells are not the only area adversely affected by the collapse of the housing market. Residential construction has come to all but a screeching halt in Clinton. According to Gary Mount, the Clinton city inspector, there was only 140 building permits issued last year, which is considerably down from the 194 issued the year before, and the number of permits for new residential homes has dropped to almost zero. Many builders are thinking twice about building new houses that they will have difficulty selling in this troubled housing market. Furthermore, home builders are having an extremely difficult time selling the houses they already have on the market. When a builder borrows money to build a house, they simply cannot afford to have it remain on the market for years at a time. These builders pay interest on their loans just like everyone else. When their houses are on the market for long periods of time, profits are swallowed up by the interest paid on their loans. This is the fear that is causing many home builders to reconsider new housing starts.
This slump in construction has also had a devastating impact on the workforce in Clinton. Many people in this community are employed in the construction industry. As the construction of new homes is coming to a standstill, many professions in the construction industry are being adversely affected. These construction workers depend on the jobs that are created when new houses are built, and many of these workers are finding it much harder to find work. The U.S. Department of Labor reports that the unemployment rate for Henry County has increased from 5.1 percent to 6.7 percent since 2006. This is a staggering increase, but it does not tell the whole story. This number only accounts for those who are unemployed and still looking for work through the unemployment office. These numbers do not account for the self-employed who are struggling to find work, workers who have had their hours cut in half, or the unemployed who have given up on the hope of finding work and stopped filing with the unemployment office. When these people are taken into consideration, we realize just how profoundly the housing market has affected the construction industry. If the housing market and the construction industry continue this slump, as many analysts suggest they will, the unemployment rate could continue to rise far beyond its current level.
After carefully examining the evidence it becomes painfully clear that the severity of the economic crisis is much worse than originally thought, and its effects reach much further than the housing market alone. The bursting of the housing bubble has created major financial losses for many people in Clinton. Furthermore, the financial disaster caused by the housing market crash has had a crippling affect on the economy of this small town, and it has adversely affected almost every citizen in the community.
