No one wants a recession, so in order to give the economy a shot in the arm, interest rates began to fall again in an effort to tempt people to purchase new homes. Interest rates are continuing to drop and mortgage lenders are trying to coax people into refinancing their current property in an effort to generate business. The fees that were necessary in the 1990s have been pretty much eliminated as lenders compete for business. In addition to getting a lower interest rate, there are many other reasons why people choose to refinance there homes. Another popular reason is to take some of the equity out of their home in order to make a major purchase or complete a large project within their existing home.
If they were to decide on a cheaper home that would mean a smaller mortgage and less they owe someone else. The sooner a person can get out of debt the better because you never know what is going to happen. Like I mentioned earlier, accidents and identity theft happen all the time and you never know if or when they are going to happen to you. Nothing is worse than being in debt and not having a source of income. The government has set up programs such as HUD homes for families that are less fortunate than others.
As people lose their jobs or experience a slowdown in business and decrease in their household incomes, it is harder to meet their financial obligations. In addition to the tighter lending restrictions and home values dropping, many homeowners that owe more than their homes are worth, have decided to stop paying the mortgage and walk away because they are unable to sell them. In spite of encouragement from the government to work with homeowner and help restructure their mortgages, this is not being done. In October, 2008, President Obama signed the TARP act. This law was designed to give $700 B... ... middle of paper ... ...tes can slowly be adjusted upward to current market interest rates.
The government also bailed out failing banks after it became apparent that their current way of lending money was leading to crisis. This bail out meant that the banks were not forced to confront and fix their own mistakes. Thus stated, we are now in a crisis, and must make some changes in our mortgage loan policies in order to help the people who cannot pay their monthly mortgages as well as the banks, who are forced to foreclose and sell the houses at a loss. There are three variables that affect a monthly mortgage payment: interest rate, principle, and term. The banks simply cannot lower the principle, because they would lose too much money for loans to be beneficial to their business.
Some people can simply not afford to buy a home, and these people must be screened out during their evaluation to keep the bank from having to foreclose on them in the future. Although banks want to lend money to these people so that they can make money on the ... ... middle of paper ... ...to these people and to the market would be far less than the long term problems that will be caused by the government or the banks intending to bail them out of the debt they incurred. The government and banks cannot afford to bail out everyone who is in debt so some of them must have their homes foreclosed. The banks cannot wait on for people to repay the loans on several homes at a low interest, long term loan. They simply must foreclose on some of these homes and hope to make some of their money back in the sale of these homes.
As a result, lending trickled down to a slow stream; consumers now can't get the money they need in order to buy new homes because banks are afraid of more defaults. I propose that the federal government pass a new relief program, but this time, it will help consumers directly, instead of giving banks money that they then refuse to lend out. This program should target those homes in which mortgage payments have not be... ... middle of paper ... ...erefore, under my plan, the existing penalties would be erased for the homeowners receiving the six-month loan. This would, in effect, give these homeowners the fresh start that they need. The penalties would still apply for any late payments after this government loan ends, however, to give homeowners an incentive to get their act together during their six-month reprieve and pay their mortgages to evade future repercussions.
So we are forced to do it the conventional way by getting a loan. An investor ... ... middle of paper ... ...at will allow the final price closer to the asking price. Now the buyer can afford their new home. There should be more non-profit organization that can assist the struggling home owners to restructure their delinquent mortgage without being charged for it. I have seen and heard many people complain that when they attempted to get assistance from a company that is supposed to get them out of the foreclosure problems they are charged a large fee.
The foreclosure crisis is a serious problem. Recessions are horrible for society to endure, but when people are losing their homes all around, the confidence in recovery needed to fuel the economy is eroded away until it seems almost hopeless to end the economic slum. Unfortunately there isn’t a simple solution to the foreclosure problem. The best way to solve any problem is to know what causes it. Foreclosure is the result of mortgage loans being given irresponsibly to people that can’t afford them.
Banks and creditors would bare the brunt of these substantial writes downs. With homes and mortgages valued at a fair market value there may be greater incentive for homeowners to continue making payments on their homes instead of resorting to default or short-selling their homes in order to exit their current mortgage agreements. There are many ups and downs to the business cycle. Many experts say that the scale of the current recession may be equivalent to that of the Great Depression. Certainly our country is currently faced with difficult times with unemployment and foreclosure rates increasing rapidly.
With billions of dollars being pumped into the banking system why then are banks still timid to continue financing home loans? 1. They are concerned that home prices will continue to fall, adding further risk to their bottom line. 2. 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” .