Solution to the Foreclosure Crisis

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How real is the mortgage foreclosure problem in America? How did it come about? What are some possible solutions? First of all, the problem is so big that almost everyone knows someone who lost their house because of a foreclosure, and this is new. It didn’t used to be that way. Listening to the stories of foreclosure evictions provides an eyewitness viewpoint of how it happened. This is important because it provides a background against which to decide solutions.

The overhang of foreclosed homes for sale is pummeling home prices and laying waste to entire neighborhoods. In the process, consumer spending has suffered mightily and deepened the recession as Americans have seen the value of their most important assets, their homes, are falling in value.

There were a lot of different factors that went into the development of the problem. There was buying a house that cost more than the people could afford, and there was taking on a mortgage payment that had monthly payments that were really high. There was the problem, too, of people who had no savings after they bought their house, so if anyone got sick or lost a job they couldn’t make their payments.

Finally, experts are not sure of the solution to the foreclosure problem. They have thought about encouraging lenders to “renegotiate”. Renegotiation means sitting down and hammering out another agreement, maybe having the bank accept a lower mortgage payment and forgiving some of the balance. Banks tend not to want to do this because they think that if they just take back the property and sell it to someone else, they will not lose any money, but is that really true? And what are the advantages and disadvantages of renegotiation?

We will consider each question in turn. First of...

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... not have empty, vacant houses. Property taxes will continue to flow into government and everyone will have a win-win situation.


Adelino, Manuel, Kristopher Gerardi and Paul S. WIllen “Why Don’t Lenders Renegotiate More Home Mortgages? Redefaults, Self-Cures and Securitization.” Public Policy Discussion Papers. July6,2009 accessed Dec8,2009

Carr, James H. Housing Policy Debate. Responding to the Foreclosure Crisis. Volume 18 Issue 4 2007. 837-860

Mills, Bart. “Residents Hang on To Homes”. The Lima News Dec 12,2009.

Spader, Johnathan S. and Roberto G. Quercia. Mobility and Exit from Homeownership: Implications for Community Reinvestment Lending. HousingPolicy Debate volume 19 Issue 4. 2008. 675-709.

Wikippedia. Foreclosure. Dec7,2009
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