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More Than Housing: A Double Ended Approach To The Foreclosure Problem In America

1609 words - 6 pages

As the economy drops and foreclosures are on the rise, millions of Americans who were financially stable several years ago are asking the same question, “How could this happen to me?” The crisis has occupied the minds of politicians, who are trying desperately to solve this problem, but the tragedy continues as more and more Americans are foreclosed on with no alternatives. The foreclosure crisis will not be solved by simply lowering interest rates, firing loan brokers, or other short-term, ineffective solutions. The long term solution to the housing crisis has nothing to do with housing. The government has lost its way and needs to redirect the way the whole economy is run.
The reason why the foreclosure crisis calls for such a drastic solution is because the problem has two specific deep roots. The first root could have been avoided easily. One original problem for this crisis is the people who were not in a financial position to buy homes in the first place, but did so anyways. Somehow the banks got blamed for all this; however, it was faulty government policy that was to blame. During Clinton’s second term, the government encouraged banks to loan to those who were previously unqualified. Banks prior to this had set standards on income, credit FICO scores, expected future income, and other standards required to prove prior to loan acceptance. Although the banks advised the federal government that these requirements were in place for a reason, the government insisted that the standards be lowered to include previously unqualified buyers, or subprime loans. The 20% down payment was replaced with 0-3%, which nearly guaranteed that anyone could qualify for the original loan. [1] The more money a person invests into their home, the more likely they are to continue living in that house. Drastically lower the down payment and the banks leave no motivation for anyone to keep a house that is becoming financially inconvenient. If it were truly feasible for everyone to own a home, universally inclusive home ownership would be great. However, if a person is not in a financial position to pay 20% of their house on the down payment, how can that person pay for 100% of their house in their lifetime? If someone has invested 20% into their house, they are less likely to walk away from their houses than someone who put 0-3% down. Because the banks were basically loaning out money for free, people were unwisely aggressive on their purchases.
To slow this down, the banks need to reinforce their standards for loans. However, this may take several years to implement. In the mean time, something needs to be done. People who have already moved out of their houses should move into a more affordable living space, either a house or apartment they can afford. Foreclosing is a lose-lose situation. Here’s why: say someone owns a hundred thousand dollar home and is making a $1000 payment to the bank per month to pay it off. Now that the banks are...

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