Exploring Solutions to the Housing Crisis in America

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Americans were willing to live beyond their means, and bankers were willing to finance the dream. The biggest problem with this easy money was the obvious lack of responsible financial regulation. “Stated income” allowed anyone to easily commit fraud for a home loan, and banks weren’t worried about the money they lent since the loan was ultimately backed by the government. Sub-prime borrowers were given the opportunity to get mortgages, and no money down allowed people to get a home loan without really having “skin in the game.” Second mortgages were only icing on the cake and people figured that as long as house prices kept rising, home equity could be used as an instant cash machine to live even further beyond their means. As long as the lenders were collecting high interest and the borrowers monthly payments were low, everyone was happy. Wall Street was making a fortune selling CDO’s and encouraged banks to make lending even easier, and the people signing their names to the loans were more than willing to live a superficially wealthy lifestyle in debt. Ironically, Wall Street was named after walls that were constructed to keep out wild pigs, but the walls of financial responsibility had been taken down so that everyone could come in to feed on the mortgage frenzy. AAA rated CDO’S were sold all around the world as “safe investments”, but they ultimately relied upon a select group of Americans being able to make their monthly mortgage payments. Predictably, people began defaulting on the home loans that most could never even afford to begin with, and many now owed more than their house was worth after taking out equity loans. Many have made the decision to abandon their homes entirely considering it a bad investment to continue ...

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...ld be reexamined.

The last part of my approach is to enact consumer protection for those who were responsible with their mortgages but just came across tough times. We need to create insurance policies for people with loans that would make mortgage payments if they are unemployed, sick or injured, and cannot work. Mortgage insurance would provide protection for the both consumer and the value of the housing market, and is a critical piece in preventing foreclosures.

I sincerely hope that Obama’s administration takes urgent steps in promoting practical solutions to the housing crisis and takes precautionary measures to ensure that history does not repeat itself. It will be interesting to watch the future unfold as the “teaser rate” mortgages default and to see how government intervention affects the outcome of this unique situation facing the American people.

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