Record high unemployment, declining home values, and a recessionary climate have plunged the housing industry into a downward spiral. It started with lenient mortgage guidelines that allowed millions of people to achieve the American Dream of owning their own home. Eventually they ended up living beyond their means. Adjustable rate mortgages came due and realizing that they could not afford the jump in mortgage payment, homeowners began to put their homes up for sale. There weren’t enough buyers to keep up with the supply, and mortgages began to go into default. Families across America were faced with the reality that they could no longer afford to keep their homes, and foreclosures began to flood the market, leading the nation into a deep recession.
The government tried to help reduce the supply of homes on the market by introducing the tax incentive program for first-time home buyers. This program was successful in bringing new buyers into the market, but was not enough to diminish the over-supply of homes.
My plan is a proposal to help homeowners continue to be homeowners, help banks create more mortgages that homeowners can afford, and reduce the glut of homes on the market. To illustrate my plan, I would like to introduce you to two families, the Holmes and the Banks.
The Holmes family bought their home in 2005. Interest rates were low and demand was high. They were making their payments and all was well. Then, when the recession hit, Mr. Holmes lost his job. He found another, but was only making half the salary of his former employment. The value of their home was suddenly less than the amount they owed the mortgage company, and they could no longer afford the mortgage payment. Their loan went into def...
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...to help turn this around.
Once the plan is fully developed and implemented, a huge piece of the foreclosure crisis will be solved enabling the economy to begin gaining consumer confidence, and continue recovering faster.
Eventually, homeowners will adjust to their new lifestyle and start contributing to the economy. They will hopefully learn from this experience and want to help others in some way.
My plan will speed up the process of getting the millions of homeowners in the various stages of default to be proactive and work with skilled professionals towards a solution. The housing industry would instantly turn around, the tsunami of foreclosures sitting out there in the future would get dealt with quickly, and the inventory of homes sitting empty would get purchased. The turnaround for the housing industry would begin, thus stimulating the economy.
Likewise, Andra C. Grant says, “Between 1929 and 1932, home prices in New York fell an average of 50% and the unemployment rate rose substantially. As a result, many residential mortgages were at serious risk of foreclosure. Lenders in the 1930s faced substantial incentives to avoid foreclosure” (Grant). Most Americans couldn’t afford to buy a home prior to this downfall. The down payment was 80% upfront, and people only had five to seven years to pay the remaining amount (“How Did the FHA Help End the Great Depression?”). However, in 1934 a reform called the Federal Housing Administration uprooted. (“How Did the FHA Help End the Great Depression?”). It helped recreate the failing housing market. It is known for lowering down payments, creating a longer loan period, and introducing the idea of paying interest over time and loan standards (“How Did the FHA Help End the Great Depression?”). Through solving the housing problems, the Federal Housing Administration helped get America back on its
Sase, J. F., and Gerard Senick. Another Mortgage Tsunami? “Let Them Eat Cake” (Part Two). 2010. Print.
Downs has sought to dispel myths surrounding housing policy. The first myth he debunks is the myth that all government-sponsored urban policies have failed. Downs believes that although they had resulted in greater hardships for poorer neighborhoods, the policies have given great benefits to a majority of urban American families. While he does not consider these policies to be a complete success, he refuses to call them failures due to the fact that they did indeed improve the standard of living for most of urban America. Downs also calls to our attention the effect of housing policies on the number of housing units. Starting in 1950, housing policies were aimed at ending the housing shortage until focus was shifted to low income households in the midst of the Vietnam War. To Downs, ending the shortage was important because it was affecting the American way of life. Couples were delaying marriage, extended families were living in one home, and overcrowded housing led to overcrowded local facilities, such as schools. Downs also argues that this overcrowding led to an inescapable cycle of “substandard”
... use their homes as collateral for startup capital to create businesses or invest, promoting economic expansion.
The housing crisis in America is a major problem plaguing the United States economy. Before a solution is formulated, one must consider the history of the market and the causes of the problem. And after a solution is formulated, one must present an idea for prevention of the problem for the future. Many people see similarities between the Great Depression in the late 1920s to the late 1930s. The Great Depression was caused by the Stock Market Crash of 1929.
“The housing market will get worse before it gets better” –James Wilson. The collapse of the United States housing market in in 2008 was one of the most devastating moments for the world economy. The United Sates being arguably the most important and powerful nation in the world really brought everyone down with this event. Canada was very lucky, thanks to good planning and proper preventatives to avoid what happened to the United States. There were many precursor events that occurred that showed a distinct path that led to the collapse of the housing market. People were buying house way out of their range because of low interest rates, the banks seemingly easily giving out massive loans and banks betting against the housing market. There were
There is, I believe, no easy way to solve the foreclosure crisis. The reason for this is that the underlying problem is not merely the individual foreclosures. The underlying problem isn’t even all of the foreclosures as a whole which constitute the crisis. No, the real underlying problem is ultimately human greed. Consequently, the way to solve the foreclosure crisis, I believe, is not merely through some kind of “stimulus plan.” Yet, this matter shall be examined more thoroughly later.
It can be argued that the economic hardships of the great recession began when interest rates were lowered by the Federal Reserve. This caused a bubble in the housing market. Housing prices plummeted, home prices plummeted, then thousands of borrowers could no longer afford to pay on their loans (Koba, 2011). The bubble forced banks to give out homes loans with unreasonably high risk rates. The response of the banks caused a decline in the amount of houses purchased and “a crisis involving mortgage loans and the financial securities built on them” (McConnell, 2012 p.479). The effect on the economy was catastrophic and caused a “pandemic” of foreclosures that effected tens of thousands home owners across the U.S. (Scaliger, 2013). The debt burden eventually became unsustainable and the U.S. crisis deepened as the long-term effect on bank loans would affect not only the housing market, but also the job market.
The best way to solve this foreclosure crisis is preventing homes from foreclosing one house at a time. The American family needs a simple option to save their home. My solution is based upon the concept of the homeowner paying what they are capable today, with a long term solution for the homeowner to repay the entire debt eventually. If the homeowner can now afford to make the payments, then they can escape foreclosure, rebuild their pride, and be productive citizens.
The investors and new incoming homeowners gets to make more money than what they actually brought the poverty for. The way they make their money is by flipping the houses which means they renovate the houses and then sell the homes for a higher price. In the York and Fig series, they mention Steve Jones, a man who is known has a house flipper in Highland Park. A section in the series, The Gentrification Machine, stated “He bought it for $280,000, he tells me, put another $140,000 or so into the rehab, and sold it for – now he’s laughing – “$530,000! Oh my gosh!”. These prices on the houses are allowing old residents to leave and new residents to come because the price is good enough for them. Steve Jones has people invest in his house flipping projects. The idea of house flipping isn’t a bad thing because it makes the houses look nice and fancier than before, but driving old residents out because they can’t afford the houses isn’t right. This idea causes big changes and is another reason why old residents are
The housing boom created an illusion of ever increasing home equity. It was difficult to walk away from potential homes that seemed good on the surface, but in reality were either money pits or less than desirable. For the uninitiated, making sense out of the chaos when things start to go wrong is an emotional process that lends itself to the gradual disposal of the rose-colored glasses. The upkeep and maintenance that homeownership requires of the inexperienced homeowner, particularly an older home, is comparable to taking on a new entry-level job with diminishing returns. There is a prevailing chaos amid the turmoil of a broken water pipe during a holiday weekend.
make the reality of homeownership possible to those that otherwise would not be able to
result from the withdrawal of the federal government’s investment in affordable housing. It has been noted that
Unfortunately, much more needs to be done in order to see the light on the other side. First off, the United States economy, in general, needs to improve. The economy is having a domino effect, and now it is hitting the housing industry. Our unemployment rate is up to 10%. Banks are not prospering like in the past.
Buying and owning your home is part of the American dream. Although the dream itself has since changed, the home still remains the main focal point. Today owning a home doesn’t necessarily mean a house. People now buy duplexes, cooperative apartments, and condominiums. For some families it could take up to a couple of generations before it’s able to have the capabilities of buying a home. To many people it means a certain achievement that only comes after years of hard work. It is a life altering decision and one of the most important someone can make in their lifetime. The reasons behind the actual purchase could vary. Before anything is done, people must understand that it’s an extraneous process and it is a long term project.