How to Solve the Foreclosure Crisis

Due to the immense derivative (OTC- Over the Counter) losses banks are simply faced with using taxpayer bailout money to stay afloat and continue manufacturing these exotic instruments that Warren Buffett has labeled as “Weapons of Mass Financial Destruction” . These complex, high risk instruments have accounted for much of the banking system’s profits over the past decade. 3. Currently it is politically unacceptable for interest rates to increase, therefore bank profits from home loans will continue to remain insignificant to improving balance sheet health. Furthermore with the failure of the US Government’s loan modification program, (out of the 4 million homeowners at risk of foreclosure only 30,000 have received assistance) banks will not willingly sacrifice the principle value of the home in order to keep homeowners with negative equity from simply walking away.

However, this practice left millions of families with large loans and mortgages that they could not afford when the house market fell, thus leading into delinquency and into foreclosure. This is one of the problems that has kept foreclosures in a seemingly endless cycle. Another cyclical problem is the depreciation in the prices of homes. With some houses reaching foreclosure and families just walking out or being evicted, the lack of maintenance of the fore... ... middle of paper ... ...economy. People will make smarter, more informed economic decisions and will have the skills necessary to prevent another economic crisis like our current foreclosure issue.

The United States economy is in trouble and the housing market is suffering in a way we have not seen since the great depression. There are many home owners who are having trouble with their mortgage payments, and therefore they have fallen into foreclosure. Additionally, housing prices have gone down, and therefore the amount outstanding on many mortgages is greater than the value of the home underlying the mortgage. I think the goal of the banks and the US government should be to keep people in their homes. If the banks continue to foreclose at such an alarming rate they will end up owning too many houses and in trying to sell them continue to place pressure on the housing market thereby making it even harder for the economy to recover.

Additionally, the American public needs more confidence that home prices will start to increase. Nobody wants to purchase an investment that will decline in value. The prospective homebuyers must also share blame because of the lack of knowledge most people seem to have regarding how expensive of a house they can afford. Perhaps the biggest problem faced by homebuyers is the staggering interest rate that must be paid. I firmly believe that lowering interest rates will greatly reduce the number of foreclosures.

The numbers are staggering in either category, and despite enormous gaps in economic class, it would seem the crisis knows no demographic. Many Americans own homes worth less than their respective mortgages. In addition to this, it seems that many of the higher-growth regions across the country are having the biggest problems. The previous housing 'boom' is perhaps responsible for much of the current situation; but it was not an inevitable occurence. The American government, past and present, has made many a promise to clean up the housing market, presumably with the best of intentions.

The frequency of foreclosure in our nation today is dangerously high. The strain from the recent economic downturn has put many families and individuals in a financial chokehold preventing them from being able to make their monthly mortgage payments. Consequently, many of these people feel they’ve punched a one-way ticket to foreclosure. With all these homes being foreclosed on, we face a very real crisis. The best way to solve this foreclosure crisis is preventing homes from foreclosing one house at a time.

With our economy in a downslide and increasing numbers of foreclosures worsening our economic problems, it is obvious that there needs to be some intervention in order to prevent more foreclosures. Home ownership has always been a key portion of the American economy and an integral part of the American dream. We cannot allow the current crisis to let more people lose their homes and become disenchanted about home buying in the future. Not only will the defaults on mortgages further destabilize the American economy now, but they will also cause problems in the years to come as less people decide to venture into home ownership again. Therefore, the obvious solution to these ill repercussions is by keeping people in the homes they currently own and helping prevent foreclosures.

Still more people feel that the stock market tanking the economy has raised the price of real estate forcing people to take out larger mortgages than ever before. Unfortunately, the time is a bit late to argue about who should take the blame for the large amount of foreclosures. Instead, one should be more productive and brain storm ideas to resolve the issue. In the midst of the crisis, I believe that I have excellent ideas to resolve the foreclosure crisis in the United States of America. First and foremost, the single most common reason for default on mortgages in this country is interest rates that began as seemingly affordable “teaser” rates that eventually inflated astronomically up to 12% or more.

This last group of consumers and many homeowners that were responsible and are in need of help due to unemployment should be the focus of much needed solutions as part of the real-estate recovery. According to many research articles and papers written on the United States’ economic crisis, there are various causes that affected the financial system; one is the greed of the loan institutions that made a lot of money off bad mortgages. Mortgage brokers determine which people were granted loans, but they were not made accountable because they passed the bad debt to the consumers in “mortgage backed assets” and then took commissions for approving poor loans (Jarvis, 2009). The responsibilities were sold to the trusting investors who were promised a good return. However, homeowners couldn’t afford the explosive debt incurred, which lead to catastrophe domino affect of many people losing their homes (Jarvis, 2009).

The American dream of owning a home is beginning to elude many individuals, and it is questionable that all Americans should own a home. Many individuals no longer can afford or even want to own a home because of rising homeowner yearly taxes, and interest rates that make paying down the principal of a mortgage almost an impossibility. As a young person, I question whether it would be in my best interest to burden myself with home ownership because of the unstable economy and vanishing job market. I think that it is a good idea for most people to rent a home instead of buying a home. In the past it has been too easy for the American consumer to avoid paying their debts because the “easy out” has been to declare bankruptcy and be completely excused from their debt, and even being able to keep their home in the process.