Psycho-social impact of mortgage foreclosure.

• Author: Lashley, Maudry Beverley

1. INTRODUCTION

   The impact of the widespread mortgage foreclosure has produced devastating consequences for the family system in the United States (2008, Schuetz, Been, & Ellen). In particular, foreclosures cause significant disruption in the lives of the victims and negatively impact the family structure. According to the 2008 RealtyTrac U.S. Foreclosure Market Report, one in every 466 U.S. housing units received a foreclosure filing in January 2009, which is an 18 percent increase from January 2008. This increasing trend in foreclosures combined with houses being placed on the market in an effort to avoid foreclosure, has left homeowners feeling poor and powerless, and consequently spending less money, thus contributing to the economic downturn in the U.S. economy. Regardless of their preexisting psychological health, adults and children are affected by prolonged levels of stress, which may result in long-lasting psychiatric disorders (Sutker, 1991). There has been considerable research on the psychological and social impact of disasters and large-scale devastation on individuals and families (Gray, Marguen & Litz, 2004; Moen, 1979). These stresses have invariably been associated with loss of life, physical injuries and property damage from hurricanes and other natural disasters, car accidents, terrorism, and unemployment. Yet, there is a severe shortage of research that examines the stress upon families associated with mortgage foreclosure despite its similarity to the psychological and social impact of other personal and environmental devastations.

   1.1 Objectives of Paper

   This paper examines the impact that the current United States mortgage foreclosure and the economic downturn are having upon individuals and families. First, we present an historical overview of the widespread mortgage foreclosure crisis. Secondly, we review the literature on stress and other psychosocial effects associated with tragedies. Next, we identify and discuss the stress associated with foreclosure and its impact on the needs of those aggrieved. Fourth, we discuss coping mechanisms used by families and various modes of interventions that could be administered to individuals and families beset by the current fiscal predicament. Then we present lessons learned and close with suggestions for treating individuals plagued by the foreclosure crisis.

2. HISTORICAL OVERVIEW OF THE MORTGAGE FORECLOSURE CRISIS

   Since 2005, the availability of extremely low mortgage interest rates has created opportunities for people of varying means to purchase homes. As the number of mortgage borrowers increased for fewer homes, the price of homes increased due to the laws of supply and demand. This was exacerbated by the proliferation of borrowers with no or low down payment, the lack of verifiable assets, unacceptable credit ratings and the absence of income verification mortgages. Added to this scenario were the many real estate speculators, who were ambitious for profit. They quickly drove up real estate prices in markets such as California and Florida. At the beginning of the mortgage loan bubble, some homes increased in value by as much as twenty percent. Wishing to capitalize on this alleged appreciation in value, many borrowers took out home equity loans and/or lines of credit, thus significantly increasing the loan to value ratios. By 2007, the market could no longer maintain such spectacular growth rates, thus home values began to fall. Homeowners and speculators began experiencing difficulty in selling their properties for profit or even breaking even. Consequently, prices quickly dropped to levels below the amounts borrowers owed to banking institutions. In the meantime, banks found themselves with a proliferation of loan defaults and holding properties that they did not want (Hughes & Jeffers, 2008). For many overextended mortgage holders, foreclosure was the practical option. This resulted in these families suddenly facing economic hardship consisting of inadequate finances to meet their household needs for food, shelter, clothing and medical care (Asher, 2009; Mirowsky, & Ross, 2001). Knowing about the access to mortgages and the vulnerability of certain mortgage holders aids in understanding the stress and psychosocial effects associated with tragedies such as home foreclosures.

3. LITERATURE REVIEW ON STRESS & PSYCHOLOGICAL EFFECTS OF TRAGEDIES

   Stress is a result of one's perception that a life event, circumstance, or situation is threatening and that it exceeds one's coping resources (Fischer & Kittleson, 2000). Stress varies in duration and intensity and can be classified as chronic or acute. Chronic stress, often occurring more frequently than old stress, is frequently perceived as being more pervasive and has detrimental effects on the individual (Pearlin, 1989). Greater emphasis is placed on acute stress, which pertains to stressful life incidents precipitating psychological maladjustment (Garbarino & Kostelny, 1994). Favorable and unfavorable situations can influence and impact life events (Kaplan & Saddock, 2003). Job insecurity, work intensification, real estate loss, savings and loans collapse, along with possible devastation and dislocation of family life are the types of incidents that can move people beyond initial shock and disbelief to adversely impacting general health and family relationships (Armatrading, 1999; Larson, Wilson & Beley, 1994; Gwynne, 1992).

   Moreover, the threat to life via human and natural disasters can have a devastating impact on one's psychosocial state of mind. In recent years, the 2001 the terrorist attacks on the World Trade Center and the ensuing videos have been permanently engraved on the individual and collective consciousness of many U.S. citizens and others around the globe (Mitchell, 2002). The aftermath of natural catastrophes such as Hurricane Katrina in 2001 and the excess of 900 twisters during the 2008 tornado season are credited with inflicting stress upon families and children.

   In addition to stress, family members will often face some form of mental illness in the face of tragedy. The American Family Physician (2002) suggests that stress and problems with family, work or school may trigger mental illness. Job stress or economic losses can contribute to cardiovascular diseases as well as psychiatric disorders such as depression and anxiety, sometimes producing high rates of hospitalization (Shigemi, Mino, Y., Ohtsu, T., & Tsuda, T. 2000). Moreover, economic hardship appears to successively decrease in older age groups (Mirowsky, & Ross, 2001; Mirowsky & Ross 1999; Hazelrigg & Hardy 1997) perhaps due to older generations' reliance upon previous experiences and implementation of various strategies to weather their economic storms. However, with the changes in the economic order, and higher taxation, retired seniors face restricting opportunities which can trigger feelings of hopelessness, fatigue, and inabilities to have restful sleep (Ross & Huber, 1985).

   A warning from the World Health Organization (WHO) in late 2008 indicated that the financial crisis is likely to cause increased mental health problems and even suicide as people struggle to cope with poverty and unemployment (MSNBC.com, 2008). The director general of WHO, Margaret Chan noted that poverty and its associated stresses includes violence, social exclusion and "constant insecurity." These are linked to the onset of mental disorders and many of the affected receive little or no care. She further denounced the "abysmal lack...