How To Solve The Foreclosure Crisis
analytical Essay
1440 words
Foreclosure.com Scholarship Essay
When trying to come up with solutions to a crisis, a good beginning point is to look at how the crisis came about in the first place, then looking to change the influential factors. So what were the factors involved in the foreclosure crisis? It is widely agreed that the increase of subprime loans is largely, if not wholly, to blame. From 1996-2004, 9% of mortgages were subprime. From 2004-2006, this number jumped to 21%- $600 billion or one fifth of the U.S. home loan market now in subprime mortgages. Subprime mortgages are risky by definition, as they are given to borrowers not able to qualify for typical mortgages, generally due to a low credit score. Since the beginning of the crisis, blame has been placed on many people, including subprime lenders for lending so many loans to at risk borrowers, the government for not providing oversight, mortgage brokers for steering potential borrowers to unaffordable loans, as well as borrowers for entering into loan agreements they cannot afford. (wikipedia)
Even if only partial blame can honestly be placed on each of these groups, a change in practice will benefit greatly from each one. The first step in solving this crisis is to make sure that future foreclosures are not occurring. While foreclosure will by no means cease to exist, it should be fully the fault of the homeowner entering into the loan, and not the fault of the mortgage lender whose job it is to give out the loan. If a person is going to be unable to pay back a loan, that loan should not be given to that person, and they should be encouraged to find another home they can afford.
The subprime mortgage market, through a large boom, got way out of hand. Large amounts of people were u...
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... this mess, we must educate our people. This should be the number one goal. Without education, people will not know what they should do in order to help themselves. The government can’t help everyone at the time that they need it, so we must instead prepare ourselves for situations we know will come, such as borrowing money to buy a home. The borrowing process needs to come out from behind the curtain of mystery and become something people understand. In addition, we need to encourage federal regulation of subprime loans, as well as encouragement for our banks and lending institutions to work with individual homeowners to ensure further foreclosures do not occur. This crisis was terrible, and we haven’t seen the full reaches of its effects yet. However, as long as something good comes of it, as a country, we can recover and move on as a stronger and smarter people.
In this essay, the author
- Argues that banks shouldn't lend to people who need money for educational purposes, car, or home. the country as a whole should be getting better information about credit in general.
- Opines that a better education system for potential homeowners would help greatly.
- Argues that banks should offer to refinance every homeowner's mortgage at 4.5% and work closely with individual homeowners to ensure that they don't default.
- Argues that the increase of subprime loans is largely to blame for the foreclosure crisis.
- Opines that education should be the number one goal in order to get our country out of this mess.
Related
- opinion
- analytical
- argumentative
- The Cause of the Current Foreclosure Crisisopinion essayThe current foreclosure crisis is arguably the greatest economic disaster to strike the US since the Great Depression. It is the culmination of a number of factors; an economic "perfect storm" if you will. What makes this current downturn more pronounced is that much of it could have been avoided. While a simple prescription of "how to fix things" would be lovely, it's also not possible. Mammoth problems can be slowly healed, but understanding is the first step in that process.
In this essay, the author
- Opines that the current foreclosure crisis is arguably the greatest economic disaster to strike the us since the great depression.
- Opines that to understand what created the foreclosure crisis, one must research both the financial and real estate systems. offshore funneling of assets, missing records of loan debt ownership, and other undisclosed business practices make the world of finance a dizzying maze.
- Explains that a large chunk of the foreclosure crisis came from borrowers who defaulted on sub-prime mortgages.
- Explains that prime mortgages require proof of income, good credit, and a down payment of 10-20% of the home's value. this arrangement worked well for over 50 years, allowing for slow but secure real estate investments by banks.
- Explains that the "promise of profit" drove the housing boom at the turn of the millennium. however, the system breaks down when borrowers begin to miss payments.
- Explains that as job loss began to climb, more and more homeowners began defaulting on mortgages. sub-prime default loans were joined by borrowers who defaulted due to loss of employment.
- Explains that mortgages are not handled individually, nor by one institution. in the process of securitization, a large number of mortgage and loans are resold to an investment group.
- Explains that securitization complicates matters in another way, as loans are bundled, decision as to the fate of these loans must be agreed upon; senior members receive payment from the bundle first.
- Analyzes how the us government stepped in to prevent a catastrophic meltdown of the entire financial system.
- Opines that predatory lending was at the heart of the crisis. banks are expected to make good business decisions, but high-risk loans with the hope of making a large profit quickly.
- Explains that high-risk business decisions have always been a part of the financial sector, yielding soaring profits quickly to those lucky enough to be in the right place at right time. these ventures carry the inherit risk of substantial loss.
- Analyzes how the financial collapse could be thought of as a multi-trillion dollar gamble. banks perpetuated this cycle by allowing lending to fund buying even among those not in position to buy.
- Compares bernard madoff's $65 billion ponzi scheme with unethical lending practices by scores of financial institutions, which led to a false rise in real estate beyond its true value.
- Explains that business risk has been a part of the financial landscape for years, but when such ventures fail, the repercussions have always fallen upon the business itself.
- Opines that it's not as simple as "demanding the heads" of those responsible, but some measure of responsibility (or lack thereof) must be accounted for, lest we be doomed to repeat the mistakes of the past.
- Opines that people inherently want to make a better life for themselves, and most times engage in such practices honestly. when honesty is violated, people lose this privilege.
- Opines that a wholesale government takeover of all business is warranted by regulation and oversight. the securities and exchange commission would have fulfilled this role, but current loopholes to regulation leave them unable to regulate and prevent business practices.
- Opines that the ability to "cloak" business practices from government regulation is a proximal cause of the current crisis.
- Opines that disclosure of business practices and tracking of debt transaction/current ownership are just two options to restore investor confidence.
- Opines that corporations can trade debt, but the cost versus benefits involved through securitization seem to be too steep. a percentage of ownership model would limit losses by both large and small investors.
- Opines that solutions to the foreclosure crisis are within the grasp of the us government and it's people, but they require oversight in business dealings.
2236 wordsRead More - The foreclosure crisis has been and will probably always be a problem facing the American population. Even if it has recently begun to be a major problem for the US as well as the global economy, it hasn’t simply sprouted out overnight. A major spark that created this crisis was the housing boom; in fact it was because of this boom that it began to take form. Since people were working for their money in the 90’s, mortgage lenders decided it was the best time for making the most money, to do this they used what is called a subprime mortgage loans to give to everyone who walked into their office, with or without proper qualification (a qualified person being one with an income to debt ratio of around 30 percent). These mortgages consisted of a “fixed” low rate for a number of years and then raised 100 percent or more in the years following, and adding fuel to the fire was the fees which the loan companies imposed on defaulted mortgages, making it almost impossible to afford the monthly payment, and were the main reason for the horrible crisis that would ensue. These homeowners would them take out equity loans in order to make some extra cash in order to keep their heads above water financially, which instead worsened their situation as the housing market started its decline. While the people who had acquired the undesirable loans were suffering enough on their own, banks and other institutions began to add fuel to flames by handing out CDOs, or collateralized debt obligations. These CDOs would contain as many as 100 subprime mortgages and were distributed worldwide to many different investors, in order to cover the debt that homeowner were accumulating. These actions set up a terrible domino effect; the more homeowners went into def...
In this essay, the author
- Explains that the foreclosure crisis has been and will probably always be a problem facing the us as well as the global economy.
- Explains how subprime mortgages were distributed to investors worldwide to cover the debt that homeowners were accumulating. bear stearns hedge funds closed two offices and foreclosed houses, which froze the money market.
- Opines that banks and financial institutions are at odds with the obama administration due to the fact that they are being asked to help homeowners and small businesses by giving out loans and in the other way, being told to watch their balance sheets.
- Opines that the road to recovery will be a long and devastating one because of greedy bankers and no income borrowers.
- Opines that it will be a hard and winding road to travel on but the fruits of the well flowing system are bountiful and plentiful.
1030 wordsRead More - Approximately 14% of homeowners are either behind in their house payments or are currently in foreclosure. The foreclosure crisis was not created by one issue but a combination of issues. It will take more than one idea to bring the crisis to an end and stabilize the housing market. Both individuals and financial institutions are responsible for the current mess. Individuals borrowed more than they could afford but they were allowed, and sometimes encouraged, to do this by the financial institutions. Part of the issue is individuals no longer see the value in saving, delaying gratification and acting responsibility. Our American materialism has gotten the better of us.
In this essay, the author
- Explains that the foreclosure crisis was not created by one issue but a combination of issues. individuals and financial institutions are responsible for the current mess.
- Opines that financial institutions are responsible for allowing the borrower to borrow beyond their means. in pursuit of increased profits based on the additional interest from an overinflated loan, the qualifications began to lax.
- Explains that the financial institutions were bailed out by taxpayers but the banks in turn have not had the same compassion for homeowners. the overall economic situation has led to job loss and additional defaults on property.
- Explains that some banks offer grace periods, longer repayment schedules, lower interest or a decrease in the loan balance. their plan incorporates these in different configurations which will not cause hardship to either group and will encourage homeownership.
- Explains that banks would be required to accept the amount the home sells for as payment in full and forgive additional loan amount. the bank would have first option to finance with the new buyers, when possible, at competitive interest rates.
- Explains that without property tax, the overall budget for each community is reduced. when the property is purchased, either the bank or the new owner is responsible for the taxes plus fees and penalties.
- Explains that if the buyer is a college graduate, 50% of their total student loan will be eligible for interest credit on their taxes.
- Explains that a mortgage review based on the employment status of the individual would be required if they can prove that the job loss was not due to personal negligence, i.e., proof of receiving unemployment compensation.
- Explains that foreclosed properties come with a number of required repairs. if the homeowner hires an outside contractor to complete repairs, the formula can be generated to allow for tax credit. this will stimulate both purchases of less desirable properties and local contracting and the local economy.
- Analyzes jay thompson's article 'how the government can fix the foreclosure crisis' and argues that free market economies are based on supply and demand, so there should be no government interference in stabilizing the market.
- Opines that there is no one formula which will fix this situation. the banks will need to tailor their response to the needs of the individual homeowner based on the options provided in this essay.
1137 wordsRead More - Foreclosure Crisis- The Result of Unserviceable Debtopinion essayThe country is certainly in crisis, but the crisis is not being caused by mortgage foreclosure. Foreclosure is simply a mechanism for people to deal with a debt they can no longer afford. Rather than being a crisis, the potential onslaught of home foreclosures (which has been slowed somewhat by the Obama administration’s “Making Home Affordable” program) is actually market forces hard at work cleaning out the mess in the real estate market caused by too much cheap money loaned to people who were not sound credit risks to buy homes they could not afford. When home prices are completely out of line with wages and people who would normally have a hard time getting a friend to loan them $20 are able to take out interest-only loans to buy over-priced housing, something is very, very wrong. While it may be painful for many people, the real estate market collapsing, including thousands of inevitable foreclosures, is not a crisis, but rather a result of the real crisis – unserviceable debt.
In this essay, the author
- Opines that it's better to rewrite your mortgages so you can make your payments and stay in your homes.
- Proposes giving troubled homeowners an incentive to foreclose, instead of modifying mortgages. this would help recapitalize and force lending institutions to take their losses. falling housing prices would also have a secondary benefit.
- Opines that the most sensible, soundest and kindest solution to the debt crisis caused by the real estate bubble is foreclosure, which is the best way for the housing market to grow again.
- Argues that the real estate market collapsing, including thousands of inevitable foreclosures, is a result of unserviceable debt.
- Opines that the solution is to clear the housing market as quickly and painlessly as possible.
1573 wordsRead More - Proposed Solutions to the Foreclosure Crisis in Americaanalytical essayForeclosure, the process of claiming the defaulted property to cover the cost of an unpaid debt, has hit America like a tidal wave. Considered to be a crisis and a major factor in the poor economic situation of today, there is no doubt that the current state of the housing market and the influx in foreclosures across the nation has had a dire impact on the American economy since the beginning of 2007. Strategies, policies, action plans, and all other means of organizing a recovery have been attempted, but to no avail. Not even Congressional legislation was able to revive the stalwart economy (although the legislation was not specifically targeted toward foreclosure practices or policies). The plain and simple truth is that no matter what the government tries to do, as long as it is attempting to do something, it is directly harming the economy and subsequent foreclosure practices thereof. The best approach is for the government to back out, to stop the destructive and often contradictory policies that have been put into place, and to allow free enterprise and the private sector to revive the economy. Multiple aspects of the foreclosure system are affected by governmental interference, and only by placing a wall as ironclad as the separation of church and state between the government and the economy can these economic woes be eliminated. This is what caused the crisis, but repairing the crisis is a simple fix. Get the government out, encourage living within one’s means, and allow time for the repairs to work effectively.
In this essay, the author
- Argues that the current state of the housing market and the influx in foreclosures have had a dire impact on the american economy since the beginning of 2007. the best approach is for the government to back out, stop the destructive and often contradictory policies that have been put into place, and allow free enterprise and private sector to revive the economy.
- Explains that the first major problem that led to the foreclosure crisis is the availability of loans for housing. freddie mac and fannie mae are similar, chartered by congress, but run against the traditional economic grain.
- Argues that the federal reserve is a bank and government institution at the same time. the government controls the sails and freddie mac and fannie mae is the rudder.
- Argues that encouraging leasing as a new trend will help fix the economic problems related to foreclosure.
- Argues that government meddling has persisted since the great depression, and only by fully removing it can we hope to resolve not only the current crisis, but future problems as well.
- Opines that in order to solve the crisis, the attitude of the government towards banks must change.
- Opines that the recovery phase is the simplest part of the whole process, but it must be given time to work.
1749 wordsRead More - Solving the Foreclosure Crisisopinion essayThere a many ideas being discussed everyday about how to solve the current foreclosure crisis. The President and his staff have worked on plans, Congress has worked on different plans, and the financial industry has worked on its own set of plans. None of the plans have seemed to make a dent in the crisis so far. The main reason given for the slowing number of foreclosures now is that there just happen to be less bad loans out there since so many have already foreclosed. I believe that the biggest reason we had so many foreclosure in the first place was because banks and mortgage companies placed so many people in home loans they could not afford if any type economic downturn occurred which, of course, it did occur. My solutions involve changing the structure of the home loans because I feel this is the most flawed area. It is based on a simple premise; homeowners can only pay what they can afford. To solve this crisis, I would like to offer three plans that have not been tried to date.
In this essay, the author
- Explains that there are many ideas being discussed about how to solve the current foreclosure crisis, but none of the plans have seemed to make a dent in the crisis.
- Suggests that banks and homeowners make a new agreement to take that overdue amount and add it to the end of their current loan.
- Opines that plan 2 would be for homeowners that still have a current income but cannot make the monthly payment every month. the banks would determine the amount that can be paid to the bank and draw up new agreements to make this new amount the mortgage payment.
- Explains that plan 3 is just a new set of rules to qualify more homebuyers. it would help the banks and prospective home buyers in cases where the current homeowners no longer have viable income.
- Explains that plan 3 would qualify more homebuyers for home loans no matter how bad of credit rating they have. they would have to set up automatic loan payments to the bank that correspond with how they get paid.
- Argues that the banks and mortgage companies have done the opposite of allowing easy new loans to credit challenged people.
- Explains that the current crisis happened mostly because banks put homebuyers in homes that they could not afford right away or couldn't afford later on when their mortgage payments became higher.
- Opines that innovative solutions would solve the current foreclosure crisis and prevent another such crisis from happening on a large scale.
1108 wordsRead More - Solution to the Foreclosure Crisisopinion essayHow real is the mortgage foreclosure problem in America? How did it come about? What are some possible solutions? First of all, the problem is so big that almost everyone knows someone who lost their house because of a foreclosure, and this is new. It didn’t used to be that way. Listening to the stories of foreclosure evictions provides an eyewitness viewpoint of how it happened. This is important because it provides a background against which to decide solutions.
In this essay, the author
- Explains that the mortgage foreclosure problem in america is so big that almost everyone knows someone who lost their house because of a foreclosure. listening to the stories of foreclosure evictions provides an eyewitness viewpoint of how it happened.
- Explains that the overhang of foreclosed homes for sale is pummeling home prices and laying waste to entire neighborhoods. consumer spending has suffered mightily and deepened the recession.
- Explains that there were different factors that went into the development of the problem, such as buying a house that cost more than the people could afford, taking on mortgage payments that were really high, and people who had no savings after they bought their house.
- Explains that experts aren't sure of the solution to the foreclosure problem. they have thought about encouraging lenders to "renegotiate".
- Defines foreclosure as the legal and professional proceeding in which a mortgagee or other lien holder obtains court ordered termination of the mortgagor’s equitable right of redemption.
- Explains that foreclosure rates are now running 1.56% for october, which is slightly higher than one year ago, but less than it was earlier this year.
- Proposes that the government should make the same 4.5% mortgage rate available to all american homeowners through refinancing. banks and other lenders would write the loans and then sell them to fannie mae and freddie mac.
- Opines that the new rates and lower monthly payments would be especially helpful for homeowners with negative equity (they owe more on their mortgages than their homes are worth). these underwater borrowers are prime candidates for default.
- Explains that $1.5 trillion of securities backed by subprime and similar mortgages have continued to decline in value, destroying the capital of many major banks and other financial institutions faster than the government has replenished it under the troubled asset relief program.
- Narrates the story of a family who were married with five sons and wanted to live in the country.
- Explains that foreclosures occur because a family buys the house for more than it is valued and then has financial reverses so they can't manage the mortgage payments.
- Explains how foreclosures happen and to whom, but what is the solution? banks are being asked to verify and renegotiate with owners to try to forgive some of the debt and keep them in their houses.
- Opines that renegotiation is better than getting in a new family for community reasons. james carr writes that foreclosures are occurring in minority and low-income areas, resulting in neighborhoods with lowered property values, boarded up and vacant houses, and increased crime.
- Explains that there are some existing programs, such as hope hotline initiative and national home ownership sustainability fund, that help with loan workouts and refinancing.
- Opines that renegotiation and mortgage forgiveness will only occur if someone puts p money to make up the difference between affordable and expensive mortgages.
- Explains the ford foundation's suggestion that the government should purchase securitized mortgages, then discount them to the mortgagees and pay them back at a reasonable rate.
- Opines that families who signed unwise mortgages need compassion and counseling. improving their money handling skills and understanding of what they signed is important.
- Suggests that the government purchase these loans at a educed discounted rate, like the ford foundation has suggested. this would get those mercenaries out of the mortgage business.
- Explains that why don't lenders renegotiate more home mortgages? redefaults, self-cures and securitization.
2196 wordsRead More - While tax cuts, refinancing and subsidized federal loans can temporarily solve a housing crisis, it can never take out the roots of the weed out of the ground. What was it that threw us into a foreclosure meltdown in the first place? Did people suddenly lose all their money? Perhaps the government failed in some way? No. The fact of the matter is that people began to borrow money through a sub-prime, adjustable rate mortgage loan and then couldn’t repay the lenders.
In this essay, the author
- Opines that tax cuts, refinancing, and subsidized federal loans can temporarily solve a housing crisis, but it can never take out the roots of the weed out.
- Opines that the government is ready and willing to do whatever it takes to fix the housing crisis and their swift efforts so far should be praised.
- Explains that 53 percent of loans modified in the first quarter of 2008 went bad again within six months. realtytrac and cnn money state that over 3.1 million homes filed for foreclosure in 2008.
- Explains the government's foreclosure prevention act of 2009, which was "destined" for better results.
- Explains why the foreclosures prevention acts of 2008 and 2009 didn't work with total success. human behavior has one trait that the government never put into their calculations.
- Narrates how the sub-prime adjustable rate mortgage (arm) first appeared and the housing bubble exploded.
- Opines that the only way to fix the foreclosure crisis is to let foreclosures rise and fall on their own and start from square one.
- Opines that there's no government intervention that will ever solve the root of foreclosures. tax breaks, subsidization, loan modification, none will get a permanent, satisfactory result.
- Argues that interest rates can't stay low forever, and tax credits will eventually dry up. if we enact more government assistance, what happens when medium-income still becomes too short to pay for high-end houses?
- Opines that people should live in an environment that they can afford, regardless of their income, and that the government should intervene with modified home loans and tax incentives.
- Argues that the only way to tame the beast of home foreclosures is to let the creature die on its own. government interventionist policy will never kill the root of the problem.
1180 wordsRead More - Solving the Foreclosure Crisis and Greedargumentative essayThere is no single answer to solving the foreclosure crisis. All these problems must be addressed and resolved. Lenders, as well as the government, should read the writing on the wall and plan ahead by retaining larger numbers of paying customers. Unemployed people cannot pay mortgages or taxes.
In this essay, the author
- Explains that the foreclosure crisis in america began with a chain of events that depreciated home values across our nation and added to an already suffering job market.
- Explains that the excitement of becoming a homeowner is priceless; it carries significant weight in any society.
- Argues that america needs to demand accountability of its leaders. the stimulus package was supposed to shore up the economy and begin rebuilding it.
- Proposes that the remaining balance of the 2008 stimulus be distributed across the board, to all homeowners. the solution to today's crisis is not simple, nor is it financially inexpensive.
2212 wordsRead More - Making Home a Home: Solving the Foreclosure Crisisopinion essayForeclosures have always been a fixture of America’s economic landscape. Unfortunately, the prevalence of foreclosures today has warranted the use of the word “crisis.” This crisis is not without its nuances, however; it is far from monolithic. While all foreclosures have the same result and usually involve sad families evicted from their homes, this crisis has had three distinct waves, each with its own (and sometimes overlapping) causes. As per the New York Times, the first wave was due to speculators and falling real estate prices; the second wave was due to risky mortgages, whose interest rates rose higher than the homeowners expected; and the third wave has been due to unemployed families unable to make their mortgage payments. Since the last wave is the current one and thus the one needing solutions, the third wave is the one I will focus most on.
In this essay, the author
- Explains that the prevalence of foreclosures today has warranted the use of the word "crisis." this crisis has had three distinct waves, each with its own (and sometimes overlapping) causes.
- Opines that the third wave has the most potential to grow — the population of speculators and people who took out risky mortgages pales in comparison to homeowners who depend on their work to keep up with payments.
- Opines that improving the national economy would definitely stymie foreclosure rates, but that has a global and temporal aspect beyond the scope of their solutions.
- Opines that their proposal is to suspend evicting the majority of homeowners, which would keep families in their homes and stop the growth of the foreclosure crisis.
- Explains that foreclosed houses are bad news, as they reduce property values of their neighborhood. the down economy hits the nation unevenly, and the housing boom employs risky mortgages to entice people to newly-built neighborhoods.
- Argues that their plan would not just help banks by allowing them to avoid a bad deal, but there would still be the matter of unpaid mortgages.
- Opines that homeowners will accept owing more to the bank in return for stability in where they are living and a clean credit score.
- Opines that checks and balances keep the exchange between banks and homeowners fair. their plan outlines a symbiotic, mutually beneficial relationship between bank and homeowner.
- Opines that their plan is fair and would present both sides with a solution they like. by taking an easy-to-understand idea and elaborating specifically on the negative effects of foreclosures, they can persuade banks.
1347 wordsRead More