Did banks prey on unwitting consumers or did borrowers go into foreclosure because they stretched further than they should have?

Researchers at the University of Arkansas found that most households in foreclosure were relatively affluent and highly educated people with few or no children, living in geographical areas that experienced extremely rapid real estate appreciation.

The researchers divided U.S. households into 21 life-stage groups, using data from a variety of sources. Then they identified which groups experienced the most foreclosures. The group with the highest foreclosure percentage was one they dubbed “Cash & Careers,” affluent adults born between the mid-1960s and the early 1970s.

Members of this group had high household incomes, high education levels, high home values, and none to only a few children. Also, members of this group were classified as aggressive investors, most of whom lived in areas – California, Nevada, Arizona, and Florida – with rapid real estate appreciation.

“The policy implication from our results is that strong consumer protection laws, though necessary to prevent Wall Street banks from offering high-risk loans to the most vulnerable – will not be sufficient to prevent another financial crisis like the one the U.S. economy experienced in 2007 and 2008,” says Tim Yeager, associate professor of economics and lead author of the study.

Source: University of Arkansas (05/06/2010)