Foreclosure rates all around the country have sky rocketed within the past year. This poses a severe economic problem for the United States but, will not be fixed quickly or easily. As citizens and leaders we must look not only at the short term, but the long term solutions as well if we are to fully fix the problem. To do this, we must investigate the causes of the foreclosure crisis. According to the Government Accountability Office’s report on foreclosures and mortgages there are 3 main causes of loan default. The rapid decline in home appreciation made homes hard to refinance. Many of the people that had bought “ugly homes” and were fixing them up stopped making payments on these loans to cut their losses when the housing market bottomed out, leaving many homes in need of work and in the banks hands. The second cause comes from less aggressive job markets, especially in the industrial Midwest, which led to loss of income and lendee taking out loans they couldn’t afford. The third is the way lending practices were handled. Often (especially in independent and non-bank loaners whom aren’t monitored) people were allowed to take out loans without giving a lot of financial information, causing them to receive (or be pushed into) loans they couldn’t afford. Lenders were also very aggressive with ARM’s and sub-prime mortgages, because they could bundle them into RMBS (Residential Mortgage Backed Securities) and sell them for a greater profit to investors. Fiscal responsibility and lack of information are contributing factors to these causes as well. Knowing what we know now, the main reasons foreclosure happened, is only half the battle. Now we must tackle short term solutions to ease the transition into a better situation and move...
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... unsold, offer them as rental properties. Many people can afford this option even when they can’t own, and though some housework will have to be done at the owner’s expense money will at least begin changing hands again and based again on Kensington economic theory, the theory currently used in the US, thus rejuvenating the economy. It’s a win-win.
There is no fix all for foreclosure. It’s going to happen; people will get around the safe guards, ignore the information and seek out what they can’t afford in the name of decadence. But hopefully with the suggestions I’ve offered; watching closely the market, getting information to the people, fiscal responsibility and counseling, and licensed home loaners, we can move towards a more fiscally responsible nation, a fast recovery and a more stable housing market.
Citations
http://www.gao.gov/new.items/d0878r.pdf
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