Solving the Foreclosure Crisis

The subprime mortgage crisis is an ongoing real estate crisis and financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system. The collapse of the US housing market has had a devastating effect on the nation, where the housing price boom was particularly pronounced, and the subsequent decline has been particularly disastrous. Hundreds of thousands of working and middle class citizens are in danger of losing their homes. The U.S. Home Loan Bank Act launched the government into a long-range program to reform and strengthen the savings and loan institutions. The Home Owners Loan Act provided emergency relief to homeowners and to mortgage-lending institutions. Neither of these measures had been effective, however, in providing an adequate stimulus to residential construction. Nor had they provided a means for encouraging the flow of loans into residential building from other classes of lending institutions. In 1934, the administration and Congress turned their attention to the problem of stimulating employment in residential construction. The National Housing Act of 1934 authorized the establishment of a system of mortgage insurance under the Federal Housing Administration. To achieve its objective of stimulating employment, Federal insurance was authorized of short-term loans for home repair and improvement. This insurance was offered free on any loan made by any qualified lending institution for any hom...

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...e. This program authorized loans at an effective interest rate of little more than 1 percent to veterans who otherwise could not afford to purchase homes under the G.I. program. Because the state did not impose a sliding scale for the loans based on the cost of money, for example from 1 percent to 3 ½ percent, it was liable to fairly serious fiscal risks. On the whole, however, the program made homes available to veterans who would otherwise have been unable to afford such homes.

President Barack Obama and key advisers introduced a series of regulatory proposals in June 2009. The proposals address consumer protection, executive pay, bank financial cushions or capital requirements, expanded regulation of the shadow banking system and derivatives, and enhanced authority for the Federal Reserve to safely wind-down systemically important institutions, among others.