Ten Years since the Housing Crisis By Cheryll Boswell

Listening to Janet Yellen speak at a management conference in Chicago took me down memory lane. Janet Yellen is the former Chairperson of the Federal Reserve System. The Federal Reserve is responsible for setting monetary policy in this country. Meaning, they control the amount of money and credit in the US economy. Their decisions affect interest rates and how the economy performs. The Federal Reserve also regulates financial institutions to ensure they provide fair and equitable services to all consumers.

Ms. Yellen discussed some of the financial guidelines that are now in place that banks and other financial institutions must follow as they relate to lending. During her speech, she apologized to the bankers in the room for putting financial regulations into place that might have made it too complicated for their small banks to comply with after the housing crisis. She received a big applause from the 300 conservative bankers in the room.

During the housing crisis, I just so happened to be the executive director of a local community development corporation that worked extremely hard to make homeownership affordable. Housing counseling was one of the services provided during this turbulent time. In addition to being overwhelmed with requests for help, it was heart breaking to see stress take its toll on families that had lost their jobs and were about to lose their home.

The financial meltdown of the economy and housing market did not leave the State of Illinois untouched nor the City of Peoria unscathed. In fact, Illinois was one of the worst states in the country impacted by the financial crisis. The main spark behind this catastrophic meltdown was the housing bubble. While the economy has recovered, unemployment at all time low, and the housing market is moving, I look back to see if this recovery is inclusive. We can ask how owning a piece of the American dream could cause such a devastating impact on our economy. My simple explanation is greed. Economists will give you a more textbook answer longer than I have space to write this article.

House prices growing faster than what was normal, people taking on more debt than they could afford, and loose lending standards, created a bubble in the housing market. We all know bubbles burst. The housing bubble started to lose air when supply of houses exceeded demand for housing. The housing surplus encouraged lenders to issue loans to everyone whether they could afford it. The housing bubble burst when borrowers with subprime adjustable rate mortgages had payments they no longer could afford. They could not refinance their mortgage to get a lower payment because of restrictions within their mortgage guidelines. Basically, borrowers were stuck. Their homes were foreclosed on. Once the home was foreclosed on, they had to leave. As more and more people started losing their homes to foreclosure, lenders and mortgage brokers that offered loans with subprime lending started filing bankruptcy. In 2008 the bubble imploded.

Not everyone faired equally during this crisis. January of 2008, Illinois unemployment was about 5.4% and 6.5% in Peoria County. A year later, the unemployment rate had almost doubled. Peoria County’s unemployment was 11.6% and the State of Illinois was 11.3%. Caterpillar, a heavy machinery manufacturer headquartered in Peoria, had a massive lay off. Most of the job cuts were contractors not directly employed by Caterpillar. This meant more businesses would directly be impacted and more people losing their jobs was imminent. The City of Peoria was hurting. This also started a second wave of foreclosure filings in Peoria. During the housing crisis, many minorities and low-income families where left behind during the recovery process. Over the next few months we will look at how credit conditions have changed, and the impact new lending regulations have on low-and moderate-income families.