Solving the Foreclosure Crisis

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“I’d like to suggest that 2010 be the year that banks no longer have the right to foreclose on people’s homes.” Stanley Bing, FORTUNE magazine, While You Were Out / Fourth Quarter Yearnings. Many Americans and I agree with Mr. Bing’s general feeling of the need to aide American families in holding on to their homes. However, this may be easier said than done. We cannot strip banks from the right of foreclosing on properties because then nobody would ever pay their mortgage. Banks would take overwhelming losses and more chaos would be created in the American and global economies. My solution is a multi-step, case-by-case process. One of the biggest keys to success would be to require banks to begin working with individuals in financial stress prior to reflecting 30, 60, or 90 day delinquencies. These delinquencies ruin people’s credit and cause problems in other areas of our economy. Furthermore, to ensure that banks are complying with the requirements the government should have some sort of institution regulating the banks, especially those that are currently operating with federal aide. In all of my proposed cases we will assume the following scenario: Prior property value / Amount financed $400,000.00 Current Property Value $200,000.00 Net Loss $200,000.00 Current mortgage obligations: Loan amount: $400,000.00 Interest Rate: 6.5% Term: 360 months Loan type: 5 year ARM Monthly P&I $2,528.27 Total interest paid $510,178.00 Additional Financial Points: According to several websites the cost of foreclosing on a home can vary between $50,000.00 and $75,000.00, but the bank will not only lose all of the money that it spends to foreclose the property, it would also lose the negative equity that it would later ... ... middle of paper ... ...ses would likely result in a bigger financial loss than negotiating new mortgage agreements for all of the involved parties. Splitting the loss between borrowers and lenders will make the losses more manageable for both parties. It will also reduce the emotional and psychological damages that currently loom over our communities. Individuals and families will have a more feasible opportunity to keep their homes, allowing them to maintain their self confidence and continue being contributing members of our society. Unfortunately my proposed solutions will not stop all foreclosures in the nation, but it is not intended to. It is simply intended to help those who have the desire to keep their homes to be able to do so. By allowing homeowners to keep their properties we will allow our economy to begin gaining strength and for America to begin the rebuilding process.

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