How to Solve the Foreclosure Crisis

Powerful Essays
As of this writing, Wells Fargo is the only remaining large national bank that has not repaid its bailout debt to the federal government. Most large nationals have repaid their loans from the Troubled Asset Relief Program (TARP) in order to avoid the government controls that were tied to them. This refusal on the part of financial institutions to be under stricter control of government is prolonging the foreclosure crisis. One of the reasons that foreclosures continue is because the banks are not granting loan modifications; they are playing by their own rules. Government guidelines for loan modification must be put into place for there to be a solution.

If the lenders cannot be held to different guidelines, then the process of contract law that allows for foreclosure should be temporarily suspended; much like an emergency state of martial law. The power of the loan modification decision then lies in the hands of government, not the banks. Repaid TARP funds can be used as part of the solution. Taxpayers in this country facing foreclosure deserve it.

There are several different reasons why homeowners fall into foreclosure. Some folks, faced with a home worth less than what they owe, simply walk away with no effort made to repay or to work out a solution. Others had troublesome loans with adjustable interest rates or balloon payments and simply could not keep up with the changing obligation. Still others lost their jobs or had to accept employment at vastly reduced salaries due to the collapse of the building industry and the subsequent decline of the economy. These last two categories of homeowners have been abandoned with no recourse other than to lose their homes because the lenders have chosen not to “play ba...

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...their full mortgage payments or to refinance in the conventional manner.

Another benefit of this solution is a stronger real estate market. Many homes in the foreclosure process have already been listed for sale for some time by the homeowner. This extra year will allow them more time to sell at a price that will pay off the loan and support the market; not at devalued, bank-owned prices as foreclosures.

Mortgages can only be foreclosed due to the process of contract law. Take away that power and the financial institutions will have to concede. It is a drastic step to declare that process of law temporarily invalid but is it any different than any other crisis requiring the implementation of martial law – a state where societal norms are set aside for the good of all? We have such a crisis today and this type of sweeping action is necessary.
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