With our economy in a downslide and increasing numbers of foreclosures worsening our economic problems, it is obvious that there needs to be some intervention in order to prevent more foreclosures. Home ownership has always been a key portion of the American economy and an integral part of the American dream. We cannot allow the current crisis to let more people lose their homes and become disenchanted about home buying in the future. Not only will the defaults on mortgages further destabilize the American economy now, but they will also cause problems in the years to come as less people decide to venture into home ownership again. Therefore, the obvious solution to these ill repercussions is by keeping people in the homes they …show more content…
This will be enough time, hopefully, for these homeowners to get their finances in order and resume paying their debts once again. As a mortgage payment is often one of the greatest debts of a household, the removal of this burden for six months will be a godsend to these troubled homeowners. In the meantime, banks will not be worried about their most troubled mortgages. They will be getting paid on nearly all their mortgages, either from responsible, financially secure homeowners who pay their debts on time every month, or from the government on the behalf of the troubled household. After the six months are over, there is a much higher probability that they will be paid on those troubled mortgages by the homeowners themselves, who have had six months to save thousands of dollars to pay towards their mortgages. As a result, the income of the banks will be much more secure, and they are more likely to lend out money to consumers. This will enable consumers to buy homes again--including some of the bank-owned properties that have been plaguing financial institutions for months. This cyclical effect will make the banks even more stable, and enable them to lend even more, helping out both consumers and financial institutions in turn. While this plan may seem like it has an enormous price tag for the federal government, its real cost will be much less than it may seem at the
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The United States economy is racing ahead at dangerous speeds, and it may be too late to prevent the return of widespread inflation. Ideally the economy should move ahead gradually and grow at a steady manageable rate. Mae West once stated “Too much of a good thing can be wonderful” and it seems the U.S. Treasury Secretary agrees. The Secretary announced that due to our increasing surplus and booming economy, instead of having an outsized tax cut, we should use the surplus to further pay down the national debt. A tax cut, though most Americans would favor it initially, would prove counter productive. Cutting taxes would over stimulate an already raging economy, and enhance the possibilities of an
There is by no means a simple solution to solving the home foreclosure epidemic but there are many changes that can be made to help Americans across the globe. The first, I believe starts
“Most of the homes being abandoned and foreclosed will produce losses for the mortgage lender, which could add up to trillions of dollars and break the financial system before it is half repaired” (Zuckerman, 2008). These are the major reasons why the government should be thinking of a bailout for homeowners. If the government will not take action, then these losses will go past any bailout efforts of the government and it will be too late. By preventing foreclosures, it could bring a double benefit to the US economy and society. It would let families to stay in their homes and at the same time keep the housing market from getting out of control.
The Federal Housing Authority has put a similar plan together called the “Back to Work Program” which can help the buyer return to the housing market in as little as one year if the buyer is able to meet certain guidelines. The guidelines included in the “Back to Work Program” are: the buyer must pay their bills on time, had a 20 percent reduction in income, and a minimum credit score of 620. The “Back to Work Program”, has strict guidelines to make sure that the buyer is responsible, they must pay their bills on time and cannot miss one payment, or else they will be ineligible for the program. The 20 percent reduction in income must be demonstrated to be in the result of loss of employment and the reduction in income must be for a duration of 6 months. The Federal Housing Authority primarily requires the boomerang buyerthat is purchasing a home to have an hour long credit counseling session with the Department of Housing and Urban Development, after the session is completed a plan is created for the buyer.
Since this paper only touches upon the basics of this plan, it will only explain three priority groups (keeping in mind that various subgroups can be created for a broader variety of situations). The highest priority group (Group A) must meet the requirements that follow. Homes must have been bought before January 1st, 2009, and the loans must have been financed by Fannie Mae or Freddie Mac. Borrowers must be current on their payments, and must not have missed a payment for one year before requesting the refinance. The group with the second highest priority (Group B) could have purchased their home either before or after January 1st, 2009. However, if the loan was taken out after the date, residents must wait one year (with no missed payments) to apply. Those who qualify for Group B must not have any delinquencies yet, but they can have missed two payments at the most. Therefore, while they do not have to be current on their payments, if they exceed missing two payments, resulting in a delinquency, they must be eligible for Group C. This lower priority group must have a delinquency, before or after the bank starts the process of foreclosure. This group would need to be behind on their payments, missing at least three. While all of these groups are eligible for a refinance, Group A will be able to refinance for the greatest volume of customers at the highest loan
The news mediums, television, radio, print, or social media give information 24-hours a day regarding the economy. Individuals are not so sure about the reports issued on almost an hourly basis that are stating the economy of United States is improving. Many Americans are still without jobs, and do not believe their income can continue to support their families. The cost of purchasing a home is going up in many areas across the country, which is good for the market, but can be bad for the first time homebuyer. Unemployment, expectations, consumer income, interest rates are economic factors that influence individuals behavior and the United States fiscal policy.
Foreclosure in America has been a rising and prominent problem recently, and has destroyed many Americans hopes and dreams. Over 2.3 million homes were foreclosed in 2008, and an estimated four million homes will be foreclosed by the end of this year. Despite the efforts of many banks and lending companies, over half of homes will foreclose that have received their help. I believe that we have only started in the right direction in solving the foreclosure crisis. Giving money and lowering mortgage rates will help, but I believe we should find out why Americans are in this situation in the first place. We are being too stereotypical when we think the only reason someone is foreclosing is because of irresponsible payments or buying a home
The foreclosure crisis that took over the United States a few years ago left many people facing economic hardships. This crisis happened because there was a huge housing bubble that was unsupported by actual home values. The bubble began bursting in spring of 2008 and the crisis culminated in mid-2009. Many lenders went out of business and many home owners began losing their homes. When the government became aware of this problem and began to implement new programs, it was already too late for many homeowners. Those homeowners are not at a point where they might be considering buying a new home. The housing crisis has created new rules, regulations governing the mortgage industry, and has also created a new agency dedicated to consumer protection. This consumer protection agency is called the Consumer Finance Protection Bureau. These dramatic changes have helped to create more responsible lending. The improving market conditions such as low housing costs and competitive interest rates are allowing those affected by a foreclosure to become homeowners again. Prospective buyers have a multitude of programs available to them, so even those with less than clean slate have several options.
For the last several years, the one issue that has been bringing the United States into a state of trouble that it has not been seen since the great depression has been the monstrous Foreclosure problem. Thousands of people have lost their houses. Thousands of people have faced the dangers of debt and chaos. Thousands of people lives have been ruined because of the mistakes that Americans have done in this nation. In order to solve the problem, one must take a look at how it started and how this depression began. Around eight-nine years ago, the market in housing caused many people to chase after it. This caused a mistake of creating a domino affect that has hurt banks from lending out the high amount of money to people and finding out
A possible problem with this program is that it will be costly. Many Americans will not
When the housing bubble burst in 2007, 7.3 million borrowers lost their homes due to foreclosure or short sale. These “boomerang buyers” are slowly but surely recovering from financial setbacks and reentering the housing market. Conventional lenders have seasoning requirements that prevent buyers from obtaining a new mortgage until they have repaired their credit: a seven-year window for foreclosures and four years for short sales.
Failure to implement homeowner relief programs would yield results that far exceeded local and state boundaries creating a nationwide catastrophe. As it is with the wide array of relief programs that “30% of those who qualified for relief have defaulted again” (ElBoghdady, 2014). Now, imagine the level of defaults if such programs did not exist. The lasting impacts of such programs could do wonders for the borrowers receiving help from the modifications or aid associated with the aforementioned relief programs. However, this would be less than desirable from an investor position who contributed to or agreed to offer relief in various forms. The unknown variables in the housing market could fall and result in the borrowers being upside again. Further affecting the banks with undervalued assets could result in a loss of investor confidence and face a collapse similar to that of Lehman Brothers. Although Lehman Brothers had other contributing factors to their collapse, contributory actions in the collapse was a result of bad mortgages and lack of investment to sustain its debts and operating expenses. Not having programs such as these could result in large investment firms either going out of business or the government deciding to use tax-payer dollars to bail-out the investment banks. Either way this depreciates property value and reduces income. The second and third order affects associated with reduced income and plummeting property values will directly affect consumer spending. This absence of consumer spending will create a ripple effect that could result in less supply and demand and increase unemployment. All of which could put the country into a depression that it may not be able to get out
After the bursting of the United States housing bubble, many homeowners found themselves in a dire situation. Following the dot-com bubble burst, the Federal Reserve slashed interest rates, meaning credit was cheap. Lower lending standards also meant that consumers with not-so-great credit were suddenly able to attain adjustable rate mortgages with a minimum of money down and easy initial terms. In 2004, approaching the pinnacle of the housing market’s climb, former Federal Reserve Chairman, Alan Greenspan, actually encouraged Americans to take out adjustable rate mortgages. Then, as 2006 came, Americans saw the housing market reach its peak and subsequently plummet downward. As a result, it became difficult to impossible forthe borrowers
There are three aspects to the damage done to homeowners in the recent foreclosure crisis. First, their credit ratings were damaged. Second, their personal financial situations were damaged. And, third, their investment confidence was damaged. All three aspects of homeowners’ post-foreclosure stress disorder have to be addressed before boomerang buyers will be ready to return to the mortgage market.
Nearly 100% of the three million mortgages originated prior to 2008 still underwater in 2013 would have been sufficiently de-leveraged under PRAM (Macdonald, , see Fig IV). The data in Figure III and IV confirms, most of the anchoring principles of the 30-Year mortgage have been lost due to its inability to reduce mortgage balances quick enough to keep up with our modern-day economy.