Essay on Foreclosure Crisis- The Result of Unserviceable Debt

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Posing the problem of solving the foreclosure crisis first begs the question – “is there really a foreclosure crisis?” The country is certainly in crisis, but the crisis is not being caused by mortgage foreclosure. Foreclosure is simply a mechanism for people to deal with a debt they can no longer afford. Rather than being a crisis, the potential onslaught of home foreclosures (which has been slowed somewhat by the Obama administration’s “Making Home Affordable” program) is actually market forces hard at work cleaning out the mess in the real estate market caused by too much cheap money loaned to people who were not sound credit risks to buy homes they could not afford. When home prices are completely out of line with wages and…show more content…
But of course, they did need to be considered. Like any pyramid scheme, more people have to keep buying in for money to keep being made. As the pool of potential borrowers got smaller and smaller, eventually someone was going to be left with a mortgage they couldn’t afford. And because of the nature of this particular scheme – those people with the worst credit risk and highest likelihood of default being swept into the market at the end – those stuck with a house they couldn’t sell were also the most likely to default on their loans. Which leaves us where we are today – with housing prices way above average incomes and people in far, far too much debt. As with virtually every agreement made in real estate, the collateral for the loan is the property itself. When a borrower can’t pay his mortgage, the bank can foreclose. And rather than being a crisis, this is actually a good thing. Why? Because it gives the market an opportunity to clean itself out and let prices fall back to a reasonable level so those who have been prudent with their wealth – both lenders and borrowers – can invest in real estate and benefit from their prudence. The problem isn’t the collapse of the real estate market or the need for lenders to foreclose on bad loans. The real problem lies in the government’s

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