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Foreclosure crisis in america
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The purpose of this writing is to analyze the foreclosure crisis and offer some solutions to keep people in their homes and satisfy the financial accounting records of the banking industry.
With more lost jobs on the horizon and fluctuating adjustable mortgage rates, the foreclosure crisis continues to plague America. A recent report from the Mortgage Bankers Association reveals that 14% of loans are behind or in foreclosure. This is largely due to lost jobs in this volatile economy. Many factors are involved in addressing a situation like this and one solution alone cannot solve the crisis. We saw millions of dollars in stimulus money go to lending institutions only to be left wondering why the problem is not going away.
The Problem
There seems to be so many factors to this crisis it makes the head spin when trying to categorize and analyze them all. However, there are major points to be solved that, in turn, will solve the minor ones. First, property values have declined; so many homeowners are left paying a mortgage on property that is worth less than what is owed. Sometimes, much less. Equity built up for children’s college or retirement has been eaten away. The relief period for those with modified mortgages is not long enough resulting in at least half in arrears again after just six months.
Another problem we find within the crisis is government programs failing to live up to their promises. One such government program, Hope for Homeowners, designed to keep 400,000 mortgages from going in to foreclosure, has resulted in an embarrassing 25 refinanced loans. Also, bankruptcy judges are being given new authority to offer relief to homeowners. Good for homeowners, bad for banks. One sided solutions favoring...
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...ce, thus helping the bank with accounting issues and letting homeowners use money they have not gotten yet to help with their payments. Homeowners out of work and in foreclosure will be given extra job seeking help and referrals from state employment agencies. The money could come from the other $1 billion available in stimulus funds and homeowners would have a required eligibility compliance associated with the rules governing the state employment agency.
Conclusion
We can see from this that it will take organization, proper administration and teamwork to see us through the foreclosure crisis. By means of a coalition of affected parties and through the use of stimulus money, specific guidelines for lenders and homeowners, lower interest rates, longer pre-foreclosure grace periods, and tax return diversions the foreclosure crisis can be solved.
Another $102 billion would be used to help victims of the recession with unemployment insurance, health care, food stamps and job training, while jobless aid would also be increased by an extra $25 a week. As we can see, the evidence is clear and growing by the day, the Recovery Act is working to soften the greatest economic downfall since the Great Depression and is laying down a new foundation for economic growth.... ... middle of paper ... ...
President Bush signed the Emergency Economic Stabilization Act (EESA), more commonly called “the bailout bill,” into law in October of 2008 (Woods, 2009). Under this framework, the Secretary of the Treasury enacted the Troubled Asset Relief Program (TARP) to buy up delinquent mortgages and buy ownership stakes in banks (Muolo, 2009). To fund the $700 billion economic revival, American taxpayers would be forced to foot the bill.
What: authorized $2billion for emergency financing for banks, life insurance companies, railroads, and other large businesses.
Although the crisis came to head in 2008, there were people who had realized that trouble was coming for years. The largest warning sign was the amount of credit in the market place. Many of the big companies and banks had very little capital, and the lack of capital was brought on by the housing bubble. Companies were lending too much money to people who could not pay them back. And even before people started to default on their mortgages, people could see that this was a problem. During a meeting with the Senate Committee on Banking, Housing, and Urban Affairs in January 2007 the staff of the Federal Reserve admitted “that they were aware of [the] problem in the housing issue three years earlier” (Dodd). And they were not the only ones. As far back as 2001 there were people who saw the danger that sub-prime mortgages were and who were trying to have bills passed to stop the bad lending that was going on, but no one wanted to list...
There is, I believe, no easy way to solve the foreclosure crisis. The reason for this is that the underlying problem is not merely the individual foreclosures. The underlying problem isn’t even all of the foreclosures as a whole which constitute the crisis. No, the real underlying problem is ultimately human greed. Consequently, the way to solve the foreclosure crisis, I believe, is not merely through some kind of “stimulus plan.” Yet, this matter shall be examined more thoroughly later.
In order to accurately solve the problem of the foreclosure crisis the nation is currently in, one must look at the cause of the issue. To determine the cause, the history of foreclosures has to be looked at. The questions, “How long have foreclosures been around? In the past what was the cause of foreclosures? How was the problem fixed before? What are the similarities between now and then?” all need to be answered.
It can be argued that the economic hardships of the great recession began when interest rates were lowered by the Federal Reserve. This caused a bubble in the housing market. Housing prices plummeted, home prices plummeted, then thousands of borrowers could no longer afford to pay on their loans (Koba, 2011). The bubble forced banks to give out homes loans with unreasonably high risk rates. The response of the banks caused a decline in the amount of houses purchased and “a crisis involving mortgage loans and the financial securities built on them” (McConnell, 2012 p.479). The effect on the economy was catastrophic and caused a “pandemic” of foreclosures that effected tens of thousands home owners across the U.S. (Scaliger, 2013). The debt burden eventually became unsustainable and the U.S. crisis deepened as the long-term effect on bank loans would affect not only the housing market, but also the job market.
The American Recovery and Reinvestment Act was signed into law by President Obama on February 21, 2009. The law had three major goals which were all aimed at stimulating a sluggish US economy. The first goal was to create new jobs and save existing ones by tax credits for hiring new employees. The second goal was to spur economic activity and investment in long term growth by increasing the amount of business asset that could be acquired by companies while allowing for immediate deductions for the cost of the assets as well as numerous tax credits for individuals and businesses. The third goal was to foster unprecedented levels of accountability and transparency in government spending by requiring recipients of recovery act funds to post acknowledgements on the Recovery.gov website.
In 2009, the United States economy began to recover from the Great Recession. To aid in the recovery, the newly elected president Barak Obama created the American Recovery and Reinvestment Act better known as the second of two “Stimulus Packages.” Pa...
The goal of the economic stimulus package is to improve the economic health of the United States. According to Keynesian economic theory, an increase in government spending should increase the Nation’s GDP . That is the main purpose of the stimulus package. The question is how much is this package expected to improve the economy? According to Macroeconomic Advisers (a forecasting firm), the GDP was expected to increase by 3.2%, while unemployment should fall by 1.1%, an...
...s not apart of many other economic stimulus ideas) By using profits from the future sale of the house, income tax refunds, 401K withdrawals, and a portion of federal endowments, these loans have a very promising chance to be fully repaid.
In the early 2000’s the housing market boomed, real estate was a hot investment and everyone was looking to buy a home. However not everyone can afford a home and a majority of people were forced to take out a mortgage to purchase real estate. During the housing boom banks were supplying subprime loans and upping the risk in the real estate market. These loans were not only risky but irresponsible on the part of the banks’ lending them, and although individuals receiving the loans thought they were being helped at the time, these loans were a major reason why so many people their homes, almost crippling toe U.S economy as a whole.
...just as welfare helped people during the great depression, this new plan could help people during this extreme recession. It is so important to keep people in their homes and not on the street and with help from our government and each individual taking responsibility for their actions, the amount of people facing foreclosure can decrease. Every American wants to know that they have a place to go home to and to call their own. For many people placing their homes up for foreclosure was something they never thought would happen and it is easy to say what one would have done to prevent this. As American we must stop blaming and looking at what has happened to the housing market and start planning on ways to fix this situation. Our country should take the resources we have now in the present, and create a plane to insure that every person is taken care of in the future.
“One out of every two hundred homes will be foreclosed every month, making it 205,000 new families entering into foreclosure,” Mortgage Bankers Association. The housing industry in the United States is undergoing an unfortunate crisis. There are way too many homes being foreclosed, which causes a ripple of problems. President Obama has been brave enough to take office at a time of need. Creating plans like the Recovery Act is a wonderful start in fixing this problem.
Foreclosure is an extremely serious topic for so many people. For some, it simply means that there are cheap houses on the marker, for others, it is the end of their lives as they know it. Ultimately, there really isn’t a solution to foreclosure, but there I have formulated a plan to help slow down the process.