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Preventing Future Foreclosures

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In the summer of 2008, my parents bought a condominium that had gone into foreclosure. Our goal was to “flip” the newly-acquired asset and make a profit. Since “flipping” houses was only a part-time job for my parents, I decided to lend a helping hand. I dragged trash out, demolished a ragged couch, and painted the walls. We transformed the property from a dirty dump to a highly-desired home that received multiple offers and was sold in two weeks. The previous homeowner had neglected numerous court warnings and finally had to be removed by police. Throughout the renovation process, I became increasingly interested in the United States foreclosure crisis and began pondering possible solutions.

The foreclosure problem has greatly affected many families around the country. According to the Mortgage Bankers Association, one out of every 200 homes will enter foreclosure, causing the residents to face relocation. During the span of three months, approximately 250,000 families endure foreclosure.

Through my research on the foreclosure topic, I discovered several main driving forces behind the foreclosure crisis.

As the United States economy faltered during recent times, many American workers lost their jobs and incomes. Without a steady supply of funds, these newly unemployed people could no longer pay the mortgage bills on their homes. Unable to pay the mortgages, homeowners began selling their properties and placed their homes on the housing market. This influx of on-sale homes swelled the market and enlarged housing supply. As supply increases, value of houses decreases. The value of these properties dropped so much that many home owners lost their down payment and could not pay the mortgage balance. These sellers had to pay c...

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... properties bought by people with insufficient funds. To solve the problem, a 20% down payment or higher needs to be required for buyers. Those who are able to supply this large initial payment are more likely to have a history of capable money management and pay off their mortgage loans. For interest-only loans and other “exotic” loans such as adjustable rates and 40-year payment plans, a much stricter home-buyer approval process must be set up. This will help prevent future foreclosure by disallowing those who cannot afford their mortgage loans from buying their house in the first place and lead to the decline of foreclosure.

With these new measures in place, I believe the United States real-estate market will become healthier and steadier. As the economy recovers, more job opportunities will be created, leading to long-term stability of the housing market.
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