Scholarship Essay

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Scholarship Essay

The foreclosure crisis is the second major financial dilemma of the twenty-first century. To solve this, the roots of the problem need to be dug up and exposed followed by replanting with an appropriately improved regulatory system to help build stronger roots for the future. It seems that the free market system can't be free anymore given its intertwining roots extend way beyond domestic to international financial systems. There are two fundamental causes to the latest credit crisis: 1) poor quality securitized mortgages and 2) insufficient underwriting for credit poor borrowers. Secondary (downstream) problems making the financial crisis more complex include underemployment and business failures. Many banks, eager for profit, started lowering their standards for loans and the Republican led government reduced regulations and regulatory oversight to encourage financial growth.

There is an enormous incentive to have quality loans when the lender directly holds the loan. By packaging the loans and selling them off with highly indirect and bundled securities, the incentive for knowing the borrower and maintaining the average quality of the loans is lessened. The amazing thing is that the valuation for a security based on real estate can become near zero although the real property is intact just because some of its underlying mortgages have been foreclosed. Regulations that allow enormous short term profits to be taken in trading long term securities is wrong in my opinion. Some many trillions of dollars of securities backed by sub-prime and similar mortgages have continued to decline in value, destroying the capital of many major banks and other financial institutions faster than the government has be...

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...meowners that could uphold the basis value of so much of the mortgage securities. One proposed solution is for the government to redirect its financial assets to backing renegotiated mortgages. I read little support for this solution that would directly impact the average American.

The final input to an improved regulatory system would be make home loans easier for the average American to understand. The standardized APR rating for all loans is a perfect example. Lenders fought this requirement when first proposed, but consumers all appreciate it and make loans easier to compare. I think regulations can be improved further given the fiscal environment where innovation in loan terms and conditions has complicated fiscal products in the 21th century. Regulations need to keep pace with this product innovation as in every domain of American life.

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Scholarship Essay

HOSA Scholarship Essay

Similarities Between the Great Depression and the Great Recession

History of Foreclosure