Proposed Plan to Ease the Financial Crisis and Foreclosure Problem in America

The United States of America currently faces a massive financial crisis that has led to numerous foreclosures and a loss of confidence in financial institutions. The United

States government must take decisive action to give those with impending foreclosures the ability to keep their homes. Furthermore, these government actions should focus upon ensuring that people are able to pay on own mortgages, rather than relying upon bailouts from the government. However, the government’s primary goal for all actions taken ought to be long-term stability and preservation of consumer confidence in financial institutions so that another financial crisis may be averted.

In order to solve the problems that America faces, a brief overview of their origin is necessary. Misplaced confidence in the continuous bright future of home prices and the attempts of lenders to profit in every way possible were major causes of the current crisis. Lenders often made mortgage contracts with little consideration for the ability of the recipient to repay. They were able to do this with little risk for themselves because these loans were bundled and sold off to investors. Furthermore, the demand for loans with more flexible standards was tolerated by the lenders because the lenders believed, just as those demanding the loans did, that the increase in home prices had no foreseeable end (Shiller 50). Many people saw an opportunity to make money off of subprime and adjustable-rate mortgages, and the fantasy of endless price increases overcame reasonable judgment.

A national goal of increased home ownership augmented these causes, encouraging financial institutions to make irrational loans and encouraging people to purchase homes they could not afford...

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... in danger of foreclosure is to automatically convert their mortgages to continuous-workout mortgages so that lenders will be paid at least a portion of the loan and homeowners will be able to keep their homes. Finally, home equity insurance prevents panic selling that destroys home values and gives an incentive for homeowners in trouble not to default on mortgages.

Taken as a whole, these innovations will stabilize home markets and give homeowners ability and incentive to avoid foreclosure. These policies would provide consumers with a drastically improved understanding of mortgages and the risks involved with them so that they can make better financial decisions and have increased confidence in the nation’s financial institutions. Along with new regulations on financial products to decrease their risk, these changes will prevent another foreclosure crisis.