According to an interview that I took with a real estate agent, the foreclosure is partially due to appraisers and sellers placing a higher value on the house than what it is really worth. So if there was an actual loss of $5,000, then the people who buy the house would have a greater loss than that. He also said that loan officers are also to blame for giving loans to people who were not capable of keeping up with the payments.
This issue can be solved by having a government appointed supervisor oversee a certain amount of appraisers and loan officers. The government should make the steps to become a supervisor rigorous and should have a lot of experience as either a loan officer or an appraiser. There should also be a great and very harsh penalty for the supervisors that give in to bribes. The more supervisors they require, the more jobs they will be creating. There should also be severe punishments past just jail for the appraisers and loan officers who use fraud. This would scare many of those people to keep the thoughts of cheating people only in their heads.
To deal with the issue of houses losing value, the government should pass a law requiring banks to readjust mortgage rates for all mortgages that are in trouble or about to fail. According to consumeraffairs.com, after the government encouraged lenders to modify loans, 50% still failed. This is better than having more than 90% fail and the lenders receiving no money back from those loans. The banks and other lenders should adjust the total amount needed to be paid back based on any loss in value of the house; this will reduce the amount of loans that become troubled, thus reducing the amount of foreclosures. If they fell like they will take a loss that they do not want to risk, they can extend the period in which someone has to pay off a loan; this will decrease the interest rates that people must pay for their mortgages.
Another issue is people cannot afford the interest rates of their mortgages. These mortgage rates have risen too high for them. Solving this issue can be done by placing a binding price ceiling on how high interest rates like the price ceiling placed on New York apartments. The price ceiling should differ like an income tax; it should be different based on factors like how many dependents the person has, if they have children in college, or if they have special needs.
“Selling” mortgages may be one of the greatest ways to get rid of foreclosures. This would directly reduce the amount of foreclosure; when someone feels that they will not be able to pay the mortgage anymore or in the near future, lenders should transfer the loan from the person who cannot pay anymore to the new person who wants to own the house. To ensure that the system does not get abused, the lender can require that the buyer or seller has to pay the overdue bill, if there is one, and charge a fine for transferring the mortgage.
We can also rely on the basic principal of supply and demand;...