When thinking of a solution to the foreclosure crisis our country now faces, we have to analyze how this all started. People cannot afford their mortgages, and since their house is worth less than they are paying for it, now that the housing market has plummeted, why not just let the bank take their house rather than paying? The smart economic decision their by the homeowner would be to let the bank foreclose on their house and look to buy another for much cheaper. That is the problem. Due to the severe decline in housing prices, people who bought their house about five years ago are paying more than the house is worth.
Worst of all people searching for The American Dream are facing foreclosure. I think that we need to get back to basics as far as the mortgage crisis is concerned. During the last 15-20 years there have been too many mortgages given to people who do not have the credit worthiness nor the ability to pay the mortgage, taxes, and maintenance of the home. Realtors and lenders were so quick to make a sale for the commission that they did not take in to account whether the person buying the home could actually pay for the home in the long run. Those same organizations were quick to push jumbo mortgages to people that clearly did not qualify too.
Even before the implosion of the stock markets in 2008, there were foreboding signs within America’s housing market. Foreclosure signs stood in yards and fliers advertising the sale of foreclosed homes hung from light posts. Homeowners previously enjoying a piece of America’s real estate pie, watching the value of their homes steadily rise, felt the coming recession and were forced to sell their homes to either pay off debts or slow the significant losses to their home equity. Once the stock market crashed, the recession became a depression and America found itself amid a full-blown foreclosure crisis, which coincided with the credit crisis. The value of people’s homes plummeted and unemployment soared, while they were trapped paying astronomical mortgages and home loans from before the destruction.
The process of foreclosure starts immediately once the homeowner misses the mortgage payment at the expected time. Failure to pay at the stipulated time may be due to joblessness, divorce, medical problems, conditions of the loans, and death (Laing, 2009). Foreclosure is the current threat to the United States financial market and the economy. The advertisement of foreclosed homes which are being sold is causing a decrease in home prices and lowering the values of homes which are in the neighborhoods. Because of this, consumer expenditure has suffered seriously and the situation has worsened financial crisis with the Americans watching the value of their valuable properties, their homes lose worth.
Presently in the United States millions of homeowners are facing the prospect of losing their homes due to bank foreclosure. An event if allowed to occur has the potential of collapsing not only our financial system, but our social fabric as a nation. The unfolding crisis has prompted the US Government to enact aggressive monetary stimulus designed to reverse the downward spiral of home values. Unfortunately this approach has failed to achieve any meaningful results and perhaps has acted more as a red herring to conceal the real issues causing this debt implosion. With billions of dollars being pumped into the banking system why then are banks still timid to continue financing home loans?
HOW TO SOLVE THE FORECL0SURE CRISIS 2009 was a record breaking year for foreclosures in the United States. The perfect storm of high unemployment, tightening credit, decreasing real estate values and cataclysmic stock market crash resulted in millions of homeowners defaulting on their mortgages. What are the solutions to this problem? Some would argue that the government should intervene and help homeowners. Those with a more “free market” or laissez faire approach would contend that the government should let it play out and the problem will eventually resolve itself.
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.
Before we can solve the foreclosure crisis, we must first look to the cause of the collapse of the real estate bubble which preceded the current situation. The failure of the United States economy occurred due to a series of regulations which were imposed on our banking system beginning in the late 1970’s. The government had good intentions for providing homes to borrowers who previously were unable to receive approval by most banks. However, the government’s interference resulted in banks writing more risky loans in order to stay in operation. The Community Reinvestment Act of 1977 was intended to prevent the denial of credit based on geographic location.
The HAMP program ult... ... middle of paper ... ...ach loan than they anticipated receiving on the original note. In the above example, the lender profited an additional $31,909. This increase in profit will eliminate the financial institutions resistance to modify the loans, boost investor confidence, which will keep investor’s money in the banks and purchasing mortgage backed securities once more. This will allow the banks to have more capital to lend. The trickle down effect will reach small and large businesses and they will be able to employ workers again and stimulate the economy.
More or less the people who are homeless and out of jobs now, have realized where they have gone wrong in their funds a... ... middle of paper ... ...ters into buyers through education and techniques, and then we will have buyers for the foreclosed homes. Overall, banks do not want to take back any more homes then they are able to do, therefore the investors are called in to help ease the flow of homes in any market condition. Realtors help price homes at reasonable prices forth the benefit of the seller. Banks have witnessed the largest error in their felid of expertise and have undergone many changes to heal it. The homeowners have to realize that for their own benefit, if they are educated in financial terms, they can be more aware of what to do in certain circumstances.