Solving the Foreclosure Crisis

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How to solve the foreclosure crisis? Not an easy question to answer, nor is there a simple solution. I am among many skeptics of the notion that we can truly “solve” this crisis without addressing several systemic issues of the housing market. There is not a single solution to the crisis, but a myriad of different approaches that can collectively remediate the housing market.

First, a few short-term fixes need to be implemented urgently in order to prevent the crisis from getting worse. Of priority is stemming the frequency of the foreclosures in the current market. The education of those who are at risk of going into foreclosure about their options can often make the difference between someone being able to keep his home and someone being foreclosed upon. The more people are educated the more likely they are to know their options and avoid foreclosure. For example, an individual may be able to get forbearance and thus receive enough time to start making his or her mortgage payments again (U.S. Department of Housing and Development), and in some states (such as Massachusetts), the mere filing of a “Homestead Declaration” may give a person protection from being evicted from his principal residence (Galvin).

We can thus reason that the availability of educational materials and the manner in which these educational materials are disseminated may help certain homeowners avoid foreclosure. There already exists a wealth of information on foreclosures on the website of the U.S. Department of Housing and Urban Development, and it would not be difficult to make that information accessible to virtually all people in danger of losing their home. Moreover, just as there is a federal law mandating full disclosure by a lender of ...

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...iginal mortgage while allowing the homeowner to potentially keep his or her home, thus stabilizing the housing prices in entire neighborhoods. But addressing the problem with short-term fixes is not enough. The root cause of this crisis must also be dealt with in a systematic way in order to prevent future foreclosure crises. If the sale of homes and their derivatives are not disconnected from Wall Street, then banks will continue to be incentivized to offer sub-prime loans and the like to people who are unable to afford their homes in the first place. The federal government has a central role to play both in the short term, by creating incentives for a breathing room for lenders and borrowers alike, and in the long term by disengaging the housing market from Wall Street speculation and by more strictly regulating the practices of the mortgage industry.

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