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Strategies for Reducing Mortgage Loan Default Rates in New York
Section 1: Foundation of the Study
Traditionally, mortgage loans have always assumed an imperative role in the society and in the lives of different people by allowing them to make substantial investments and own property, even without enough startup capital. In New York among other major cities across the globe where the prices of houses are high, mortgage loans have always aided individuals to acquire homes where they are given a chance to pay within a certain agreed duration. As Derossett (2015) elaborates, mortgage loans are secured through the use of property or real estate as collateral. Banks and other financial institutions fund home buyers to purchase a piece of property or home with the promise that they will pay back within an agreed time and cost. Despite the great importance and contribution of the loans in building the society both economically and socially, there has been cases of mortgage loan default rates in New York, calling for recommendations to reduce the shortcoming. Zinman (2015) reports that like the other types of debts in the nation, the mortgage loan balances have remained high where at the end of 2017, the overall household debt had hit $12.96 trillion. At present, mrost individuals in the city are behind their mortgage loan repayment while others have defaulted their legal obligation to pay their loans. This reports critically analyzes the mortgage market in New York city where from the exploration of the loan defaults in the recent past, it recommends strategies applicable in reducing the default rates. The report holds financial benefits both to the government, financing institutions, and the society at large as it will facilitate a continued collaboration in improving individuals’ financial positions. That is because when implemented, the proposed strategies will minimize loan default rates.
Background of the Problem
A critical evaluation of the mortgage market in New York discloses that in different instances and circumstances, thousands of home owners defaulted their mortgage loan payment, an aspect that not only resulted in their damaged credit history but also the loss of their homes. That has had negative impacts to various individuals where their abilities to secure loans in the future is impaired. Moreover, the defaulters in some instances face legal actions and are unable to open new accounts. It is further apparent that mortgage loan defaults have affected the normal operation in different financial institutions where their abilities to give further loans is impaired. Analytically, defaulting mortgage loans affects the overall normal business life in the city and nation as the banking institutions are required to recover homes among other items owned by the defaulters, an aspect that in return affects the latter’s normal life and businesses. As Zinman (2015) elaborates, the highest loan defaults were recorded during the nation’s great recession that took place between the year 2007 and 2010. To some of the defaulters, defaulting their loans was a strategic decision and tough choice where they focused on protecting their other finances. Critically, the increased default rates that was marked between the period resulted from the reduced financial activities in the nations that affected their sources of income. Essentially, the loan defaults result from the lack of adequate finances to pay the loans. The increased mortgage loan defaults during the recession increased the residential instability to 4.77% where a significant number of the population lack proper housing. As a result, most individuals live in overcrowded houses as they cannot afford houses contradicting the affordable housing provision by the American Constitution (Keating, 2015). That proves that the mortgage loan defaults in New York impacts both the government, citizens, financial institutions, and the business sector among other parties, necessitating strategies to reduce the default rates. Although different scholars and researchers have investigated the possible remedies to mortgage loan defaults, there has not been a lasting solution to decrease the defect rates. This paper, builds on the existing literature and research to recommend strategies that may be used to reduce the default rates in New York. That will promise a continuous growth of the financial institutions, residential stability, and success in government’s provision of affordable housing.
Problem Statement
A significant number of residents in New York has defaulted their mortgage loan repayment, more so, between year 2007 and 2010 during the recession. That significantly affected various parties in the city and nation, calling for a lasting solution to reduce or prevent cases of loan defaults in future. This study explores the available options and recommend strategies that may be implemented to reduce the rates of mortgage loan default in New York city. Critically, cases of loan default hold negative impacts to the society, government, financial institutions and the overall business sector, hence requires proper strategies to reduce the number of people defaulting their loan repayment. This study will focus on the entire society living in New York City, the financial agencies available in the city, their businesses, and the national government since each hold a significant role in reducing the overall mortgage loan default rates. Moreover, the research borrows from various bodies and research from different cities and nations with lower rates of loan defaults. The findings from the study hold positive contributions to the society as they identify strategies applicable in reducing mortgage loan defaults in the city. It proposes recommendations to improve the financial performance of lending and financial institutions in reducing the loan default rates. That will promote home ownership in the city, hence the welfare of the community, the government’s affordable housing provision, and the overall economy of the local region.
Purpose Statement
The purpose of this research paper is to explore and recommend strategies that lending institutions, the local and national government, and the society at large may take to reduce mortgage loan default rates in New York city. Critically, defaulting mortgage loans has left a significant number of Americans homeless, contradicting the governments’ provision on affordable housing to all its citizens. It is further apparent that the defaulters’ creditworthiness is affected where their relation with credit institutions is impaired. The study applies qualitative research to explore various research with the aim of understanding the underlying causes of mortgage loan defaults and develop strategies to minimize the rates of the failed repayment in New York. In doing so, the study will apply the case study design to provide an in depth exploration of the problem of loan defaults. That will facilitate the development of recommendations that may be applied by the parties involved in reducing the overall rates of loan default rates in the city and also in America at large. The recommendations will facilitate in addressing the negative aspects associated with mortgage loan default. It will result in a social change where more individuals in the city will own homes. Further, the research findings may be instrumental in improving the overall economic status of the local community as well as the achievement of the provisions by the American government to provide decent and affordable housing to the citizens.
Nature of the Study
In investigating the issue of mortgage loan default rates in New York, the research will apply qualitative research methods. The application of qualitative research methods in conducting the research will facilitate a critical exploration and analysis of the issue as it affects various parties in New York City. That will facilitate a proper understanding of the various relevant details about the issue. That will be essential in providing the appropriate tactics applicable in reducing the rates of mortgage loan default in the city. The application of qualitative research methods will allow an analysis of previous studies and a critical study of the society alongside its dynamics, an aspect that will allow the development of proper strategies to counter the problem of the increased mortgage loan default rates in the city. Further, the application of qualitative research methods in conducting the study will facilitate the exploration of the experiences of various people on the application of mortgage loan default strategies and the associated effects. In understanding the problem of mortgage loan default in New York city, thereby providing solutions to address the issue, it is imperative to engage an in depth analysis of the issue through qualitative research. From the research findings, it will be possible to recommend lasting solution to the issue.
Focusing on the research design, on the other hand, the researching on strategies to reduce mortgage loan default rates in New York will engage multiple case study. That will ensure a real life exploration of the current rates of loan defaults in New York. Critically, the application of multiple case study research will allow the exploration of the issue as it has affected the society within in the recent past. That will facilitate a comparison with the current state, hence establish the efficiency of the past interventions in reducing the loan default rates. Moreover, the research design will facilitate an in depth exploration of the issue as it is affecting the society in the present day. That will facilitate the understanding of the issue, hence the development of strategies to minimize the overall rates of mortgage default in the city.
Research Question
- What causes mortgage loan default in New York city?
- What interventions can be implemented to counter the causes of loan defaults to decrease its rate in New York?
- What can individuals do to ensure a timely repayment of their mortgage loans?
Interview Questions
- Have you ever defaulted a mortgage loan? If yes, how many times?
- As a resident in New York city, you have either defaulted or witnessed other individuals defaulting their mortgage loans. What caused you or individuals you know/heard about to default mortgage loan repayment?
- Defaulting mortgage loans hold significant implications to individuals. What are some effects noted in individuals who have defaulted their loan repayment?
- What can be done to counter the identified causes of mortgage defaults in the city?
- Timely repayment of mortgage loans reduces the chances of defaulting the payment. What can do to ensure that they pay their loans on time?
- The administration and banking institutions hold significant roles in reducing the cases of mortgage loan defaults. What can the U.S government and the banking institutions in New York do to ensure that the society pay their loans?
Conceptual Framework
The purpose of this qualitative multiple case study will be to explore strategies that some lending institution business leaders use to decrease homeowner mortgage default, and improve organizational sustainability. The conceptual framework for this study is the information asymmetry theory. XXX defined the theory as an imbalance of information between parties in a contract. This assumption means that individuals such as financial professionals, had more vital financial knowledge than their clients. From this postulation, the theory implies the terms of adverse selection and moral hazard to portray the circumstances in which one party in a contract is at a disadvantage. The adverse selection arose when asymmetric information was deficient before an agreement between parties while moral hazard transpired when at least one party of a covenant changed in behavior after engaging in a transaction. Given these points, Derakhshan and Hosseini (2018) suggested the asymmetry information theory as the first fundamental theorems of welfare economics. The philosophy is applicable in all modern financial markets as the core of modern information economics. Subsequently, the asymmetry information theory’s application assignments in the mortgage loan industry would be a proof that some mortgage loan managers (MLMs), loan officers (LOs) or loan agents (LAs) acquired some dynamic loan contract information unlike the mortgagors or borrowers involved in the contract. This conjecture was a substantiation that the asymmetry information stood for a bridge between creditors and debtors. Henceforth, the theory worked for both mortgagees and mortgagors with reference to information and could impact the decision-making process for the respective parties during a mortgage loan arrangement and default process. Exploring strategies that some lending institution leaders use to decrease mortgage default on the asymmetry information theory orientation may subsidize mortgage foreclosure crisis. From a critical perspective, it is apparent that availing the crucial information to the mortgagors is among the various strategies applicable in reducing the default rates in the New York city.
References
Derakhshan, M., & Hosseini Kondelaji, M. (2018). Modelling and Experimental Testing of Asymmetric Information Problems in Lease and Hire Contracts (Based on Contract Theory). Iranian Journal of Economic Studies, 6(1), 65-86.
Derossett, D. L. (2015). Free markets and foreclosures: An examination of contradictions in neoliberal urbanization in Houston, Texas. Cities, 47, 1-9.
Keating, W. D. (2015). Climbing Mount Laurel: The Struggle for Affordable Housing and Social Mobility in an American Suburb.
Zinman, J. (2015). Household debt: Facts, puzzles, theories, and policies. economics, 7(1), 251-276.