How to Solve the Foreclosure Crisis

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The foreclosure crisis has become as confounding as the old, neglected house on the corner of your street. With shattered windows and wild lawn, no one knows what to do with it, how to save it or even get rid of it. Public and private institutions have tried this and that to patch the ongoing economic blight: lowered interest rates, credit counseling, foreclosure workshops, short sales and bailouts. Nevertheless, the number of foreclosures has relentlessly continued its climb. This ascent has threatened the viability of entire neighborhoods and the value of most families’ largest and most important asset. It continues to drag on the economy. Easing the burden on cash-strapped homeowners under a heavy debt load does not fall on just one group. The borrowers, the lenders and ultimately the government are all at set up to take the fall. But each of these groups brings strengths to the fight, too. Job creation will no doubt be the cornerstone of any meaningful reversal in the march of foreclosure postings. In November 2009, the national unemployment rate was 10 percent — more than double the 4.7 percent rate in November 2007, according to the U.S. Bureau of Labor Statistics. Jobs are an integral part of the health of the housing market, said Jay Brinkmann, Chief Economist of the Mortgage Bankers Association in a recent report on housing delinquencies. “Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent,” he said. But beyond job creation, there are other ways to lower the mortgage default rate. Those most reluctant — and... ... middle of paper ... ...truggling to make their mortgage payments. For example, a family could borrow $10,000 to make up for a shortfall on their mortgage payment, which could repaid over 10 years at an interest rate lower than market rate. The loan would be linked to the homeowners, not the property, and would not be erased by bankruptcy or foreclosure. 8. Keep credit standards conservative. Loose credit standards and exotic mortgages are a large part of why so many people bought homes that they could not otherwise afford. Going forward, significant down payments, solid credit scores and evidence of income must continue to be a gatekeeper for home loans. In the short term, it means fewer people will be able to afford a home than they did during the real estate bubble of the mid 2000s. But it is a vital step in safeguarding the financial health of mortgage lending for the future.

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