The Great Recession, which began in 2008, led to a significant housing crisis in the United States, resulting in over six million American households losing their homes to foreclosure (Ohlrogge, 2021). This article examines the extent of foreclosures during the Great Recession, the impact on affected individuals, and the subsequent recovery process.
Key Facts
- Over six million American households lost their homes to foreclosure during the Great Recession.
- Between 2007 and 2010, there were approximately 3.8 million foreclosures.
- Foreclosure starts surged during the Great Recession, peaking in 2009, and then began to rapidly decrease after 2010.
- The composition of foreclosures changed during the Great Recession, with a significant increase in foreclosures among prime borrowers (those with credit scores 660 and above) compared to subprime borrowers.
- The decline in credit scores for both prime and subprime borrowers during the Great Recession was substantial, with average score declines of about 175 points for prime borrowers and about 140 points for subprime borrowers.
- Subprime borrowers tend to recover their pre-delinquency credit scores relatively more quickly than prime borrowers after foreclosure.
- Among subprime borrowers who experienced a foreclosure between 2000 and 2006, roughly 60% reattained their pre-delinquency credit scores within two years, and about 85% within five years.
- The pace of recovery after foreclosure was slower for those who entered foreclosure between 2007 and 2010 compared to earlier years, but after seven years, subprime borrowers were on track with their predecessor cohorts in terms of recovering their pre-delinquency credit scores.
Surge in Foreclosures During the Great Recession
The number of foreclosures in the United States saw a dramatic increase during the Great Recession. Between 2007 and 2010, approximately 3.8 million foreclosures occurred, with foreclosure starts peaking in 2009 (Dharmasankar & Mazumder, 2016). This surge in foreclosures was particularly notable among prime borrowers, individuals with credit scores above 660, who accounted for a significant portion of foreclosures during this period (Dharmasankar & Mazumder, 2016).
Decline in Credit Scores and Recovery
Foreclosure had a severe impact on the credit scores of affected individuals. Both prime and subprime borrowers experienced substantial declines in their credit scores, with average score reductions of approximately 175 points for prime borrowers and 140 points for subprime borrowers (Dharmasankar & Mazumder, 2016). The recovery of credit scores after foreclosure varied depending on the borrower’s credit history. Subprime borrowers tended to recover their pre-delinquency credit scores more quickly than prime borrowers, with a significant proportion regaining their scores within a few years (Dharmasankar & Mazumder, 2016). However, the pace of recovery was slower for those who experienced foreclosure during the Great Recession compared to earlier years (Dharmasankar & Mazumder, 2016).
Racial Disparities in Recovery
The recovery process after foreclosure also revealed racial disparities. When comparing Black and white Americans who experienced foreclosure in the same area, white Americans generally experienced greater improvements in their living conditions post-foreclosure, moving to areas with lower unemployment rates and higher per capita incomes (Ohlrogge, 2021). These findings highlight the need to address racial equity concerns in addressing future waves of foreclosures.
Conclusion
The Great Recession had a profound impact on the housing market in the United States, leading to a surge in foreclosures and a decline in credit scores for affected individuals. The recovery process varied depending on the borrower’s credit history and racial background, with subprime borrowers and Black Americans facing slower rates of recovery. These findings underscore the importance of considering social justice and racial equity concerns in developing policies to prevent and mitigate the impact of future housing crises.
FAQs
How many homes were foreclosed during the Great Recession?
Over six million American households lost their homes to foreclosure during the Great Recession.
What was the peak year for foreclosures during the Great Recession?
Foreclosure starts peaked in 2009.
How did the Great Recession impact the composition of foreclosures?
The composition of foreclosures changed during the Great Recession, with a significant increase in foreclosures among prime borrowers (those with credit scores 660 and above) compared to subprime borrowers.
What was the average decline in credit scores for prime and subprime borrowers during the Great Recession?
The average credit score decline for prime borrowers was about 175 points, and for subprime borrowers, it was about 140 points.
How long did it take for subprime borrowers to recover their pre-delinquency credit scores after foreclosure?
Roughly 60% of subprime borrowers who experienced foreclosure between 2000 and 2006 reattained their pre-delinquency credit scores within two years, and about 85% within five years.
Did the pace of recovery differ for those who entered foreclosure during the Great Recession compared to earlier years?
Yes, the pace of recovery was slower for those who entered foreclosure between 2007 and 2010 compared to earlier years.
Were there racial disparities in the recovery process after foreclosure?
Yes, white Americans generally experienced greater improvements in their living conditions post-foreclosure compared to Black Americans.
What are some of the policy considerations for addressing future waves of foreclosures?
Policymakers should consider social justice and racial equity concerns in developing policies to prevent and mitigate the impact of future housing crises.