Comprehensive Plan To Solve The Foreclosure Problem

1141 words - 5 pages

The government initiated the Troubled Asset Relief Program or TARP, to stabilize the banking system, free up the credit market, and help homeowners stay in their homes. The biggest mistake the government made with that program was not having any stipulation as part of their loan agreement with these banks, which would require those institutions to modify a certain number of loans. In the case of Bank of America that received $45 billion in bailout funds, they should have been required to modify a minimum of 1,000,000 permanent loans. Additionally, Citi Group received over $40 billion in bailout funds and should have been required to do the same. Wells Fargo got $25 billion in bailout funds and should have been required to modify 750,000 permanent loans, and J.P. Morgan Chase that received over $10 billion from the TARP fund should have been required to do at least 300,000 loan modifications. If these banks failed to meet the minimum modification requirements, then their interest rates would increase from 3 percent to 12 percent. This would have been a very costly penalty for these banks. If these requirements were included in the loan agreement between the banks and the government, over 3 million homes would have been saved from foreclosure. Most of the banks that were bailed out have repaid their TARP loans; therefore, the government has no more leverage over these banks. It is evident that these banks had no interest in doing any significant amount of loan modifications even though the government kept encouraging them and begging them to do so. This approach clearly has not worked. I saw how hard my parents tried to get their loan modified and the mortgage company was unwilling to lower their monthly payment and kept giving them the run around. They eventually foreclosed on my parents in July of this year. I have seen the frustration and agony of this process firsthand in my own home.
Here is my comprehensive plan to solve the foreclosure problem. First, the bankruptcy bill that failed in the Senate earlier this year must be revisited and President Obama must campaign vigorously for its passage because he did not campaign for this bill last time. This important legislation would give bankruptcy judges the authority to modify loans, write down principals, and lower interest rates. The passage of this legislation would serve as a big hammer over the banks. I heard on the news recently when President Obama said he would shame these banks into doing more loan modifications. I am sad to say Mr. President, that these banks have no shame or conscience. These banks do not care about the ordinary taxpayer on Main Street; they only care about meeting or exceeding their quarterly expectations in profit. This legislation would force the banks to do countless modifications themselves because they would fear the power of a bankruptcy court judge writing down a mortgage to its current market value and setting an interest rate as low as 1 percent. This...

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