The Housing Crisis: A Result of Sub-Prime Adjustable Rate Mortgage Loans

While tax cuts, refinancing and subsidized federal loans can temporarily solve a housing crisis, it can never take out the roots of the weed out of the ground. What was it that threw us into a foreclosure meltdown in the first place? Did people suddenly lose all their money? Perhaps the government failed in some way? No. The fact of the matter is that people began to borrow money through a sub-prime, adjustable rate mortgage loan and then couldn’t repay the lenders.

The government is ready and willing to do whatever it takes to fix the housing crisis and their swift efforts so far should be praised. Certain protocols, such tax rebates to homebuyers, certainly tided over the crisis for a short period, however it’s by no means a final solution. For one example, look at HR 3221, more famously known as the Foreclosure Prevention Act of 2008. Filled with a number of different foreclosure prevention actions, it was almost certain that foreclosures would slow down. With those new measures in place the housing market will surely recover…right?

Wrong. According to Luke Mullins of U.S. News, “…almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months.” 1 Statistics compiled by RealtyTrac and published in CNN Money state that over “3.1 million homes filed for foreclosure in 2008” 2.

With this news, the government saw that the problem still existed- and was growing. Armed with legislation, they came up with the Foreclosure Prevention Act of 2009, an eerily similar bill that was “destined” for better results. As it could be guessed, the bill did very little work either. In the most recently updated foreclosure check-up published by RealtyTrac, “foreclosure filings — default notices, scheduled a...

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...to alter loans through the day, but if people can’t afford their homes, then people can’t afford their homes.

Before the foreclosure crisis can come to a full stop, incomes must come into balance of appropriate home prices. When this becomes an actuality, the problem will be no more and will not be a problem in the future. If more measures are to be passed, the American people and the American government should expect to pay extensively for it and expect to see another catastrophic housing bubble burst a few years from now. As scary and ugly as it is, the only way to tame the beast of home foreclosures is to let the creature die on its own. Government interventionist policy will never kill the root of the problem. It’s time to force the American people and make the American banks reap what they sowed. Then, and only then, will the foreclosure crisis be solved.