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Homeowner Bailout Should Focus On Homeowners

2345 words - 9 pages

The current financial crisis, which had its roots from subprime mortgage crisis, began to increase dramatically in September of 2008. There have been significant economic disorders in United States alone. Major banks and financial organizations around the world are going bankrupt and writing down billion dollars. Housing markets are falling not just in United States but all around the world. This crisis is truly global and it is spreading like fire. Because of these economic crises, the US Congress came up with a $700 billion bailout plan to buy troubled assets from financial institutions who are struggling financially. Nevertheless, another bailout was proposed and it's the homeowner bailout. It is known that the foreclosure problem is getting worse and it is not planning to get better. There has been a number of housing proposals to help people with impaired mortgages and to prevent the increase in foreclosures. But it seems like with each proposal to save homeowners there are problems.
The major problem is that more and more foreclosures are dumped on the market, which reduces the home prices considerably. The downfall in home prices means that more homeowners are overloaded with impaired mortgages, which means that their houses are worth a lot less than the original price that they bought the house for. Homes have lost already an average of 20 percent in value but, “most experts foresee another drop of at least 15 percent” (Zuckerman, 2008). Also as homes are abandoned by homeowners and are left empty because of foreclosure, it decreases the value of the whole neighborhood not just the one house. The decrease in house prices will obviously harm consumer assurance, consumer spending and will eventually affect not only financial markets but all the markets (eg. consumer goods and services, gas, etc). The concern is that as house prices are tumbling, it will increase the number of people with negative equity and the drop in consumer spending could become detrimental to the economy. “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.
There are many interesting proposals to help homeowners who are in the process of foreclosure. Just recently, before the election, Senator John McCain proposed to the Treasury to spend $300 billion to purchase troubled mortgages at face value and then the “Federal Housing Administration would issue a...

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