Final answer:
Borrowers who can't afford loan payments may resort to taking out other loans on their property. Inability to pay the mortgage may lead to difficulties in making property tax and secondary mortgage payments.
Step-by-step explanation:
Borrowers who are unable to afford mortgage loan payments may have taken out other loans against the property, such as secondary mortgages. These borrowers may also struggle to make property tax and secondary mortgage payments. This can occur when the borrower's financial situation deteriorates and they are unable to meet their financial obligations.
In the past, banks carefully assessed borrowers' ability to repay mortgage loans. However, changes in finance and banking laws allowed lenders to securitize their mortgage loans and sell them as bonds, making risky loans more attractive to lenders. This led to the subprime mortgage crisis, where many homeowners defaulted on their mortgages.
The decline in property values during the mortgage crisis resulted in reduced tax revenue for local governments. Many municipalities faced financial distress and filed for bankruptcy. One prominent example is Detroit, Michigan, which filed for Chapter 9 bankruptcy in 2013.