Although the current rate of foreclosure in North Carolina is moderately low relative to the rates in the west and far south, the continuous quaking of the housing market is fracturing the entire nation. The resulting frustration is not only limited to homeowners, as the current condition of the real estate industry is contributing to a "real discontent" felt by American citizens at large, according to Christy Benson, assistant professor of business law at Elon University.
At a recent case competition focused on business ethics, seniors Steven Azar and David Krohe faced the issues of the mortgage crisis by responding to a fictional yet realistic case involving an Arizona family overleveraged in their housing loan. The students were given less than two weeks to prepare a 20-minute presentation of a plan that minimized the financial losses suffered by both the family and the bank while keeping in mind mortgage industry rules and regulations.
"A lot of research goes into understanding the whole industry," Benson said. "There is a history rooted in the housing crisis, and federal and state governments are still imposing a lot of changes (on the industry) in hopes of helping the real estate market recover."
The two students felt heavy pressure to fully immerse themselves in a vastly complex industry and still work quickly toward a solution that was ethical, legal, and feasible.
"It was challenging because (the judges) wanted us to think outside the box and come up with our own solution, something that banks may not have even started to do yet," Azar said. "It was a little daunting."
The case itself was fictional, but Azar and Krohe grappled with issues that pose genuine challenges to both large and small banks throughout the US. The housing crisis that first ignited in late 2006 left homeowners indebted to mortgage lenders because their loans were valued higher than their houses. Years later, underwater loans continue to give way to large-scale foreclosures because no feasible solution to the crisis has yet been reached.
"In the (real estate) market, there is a massive amount of lost equity and so many people overleveraged," Benson said. "If banks take the usual, legal response and foreclose, housing values will only fall faster. This (case competition) gave me the idea that there may be an opportunity to let community banks structure these programs in a way that allows (homeowners) to more gradually adjust to market conditions and restructure their payments over a longer time period."
The focus may very well shift to smaller, community banks when confronting the issues facing the mortgage industry, as large corporations are seen as increasingly untrustworthy in the public eye. Movements such as Occupy Wall Street aim to express, among other things, widespread discontentment with the perceived corruption that permeates big businesses.
It was brought to light at the beginning of November that the CEOs of Fannie May and Freddie Mac – the two largest government-sponsored mortgage lenders – along with eight other high executives in the companies received bonuses totaling 12.79 million dollars, even as their companies suffered billion-dollar losses.
"I would think that (this information) would not make (Occupy Wall Street protesters) happy," Benson said. "Not only are (the executives) not being held accountable, but they're also being paid ridiculously high bonuses. The fact that people are willing to protest publicly represents a real current of discontent, whether or not (the protesters) have come up with a unified set of principles and demands."
The implications of an unstable housing market resonate far beyond the mortgage industry. According to Benson, any one ailing economic sector has a direct affect on other sectors, including the job market, which poses a real and relevant threat to the career prospects of Elon students.
"The economy cannot recovery until the real estate market recovers," she said. "Companies are going to be conservative about the number of positions they hire and it is going to be more difficult for students to get jobs. This means that students themselves are going to have to work harder to leverage their own personal networks and it means that Elon as an institution is going to have to work harder to make sure lucrative jobs are (available) to students."