Proposed Solutions To The Foreclosure Crisis In America

1815 words - 7 pages

Foreclosure, the process of claiming the defaulted property to cover the cost of an unpaid debt, has hit America like a tidal wave. Considered to be a crisis and a major factor in the poor economic situation of today, there is no doubt that the current state of the housing market and the influx in foreclosures across the nation has had a dire impact on the American economy since the beginning of 2007. Strategies, policies, action plans, and all other means of organizing a recovery have been attempted, but to no avail. Not even Congressional legislation was able to revive the stalwart economy (although the legislation was not specifically targeted toward foreclosure practices or policies). The plain and simple truth is that no matter what the government tries to do, as long as it is attempting to do something, it is directly harming the economy and subsequent foreclosure practices thereof. The best approach is for the government to back out, to stop the destructive and often contradictory policies that have been put into place, and to allow free enterprise and the private sector to revive the economy. Multiple aspects of the foreclosure system are affected by governmental interference, and only by placing a wall as ironclad as the separation of church and state between the government and the economy can these economic woes be eliminated. This is what caused the crisis, but repairing the crisis is a simple fix. Get the government out, encourage living within one’s means, and allow time for the repairs to work effectively.
The first major problem that led to the foreclosure crisis has to do with the availability of loans for housing. While laws such as the 1982 Alternative Mortgage Transitions Parity Act (AMTPA) and the CRA amendments of the mid-1990s did have an effect on the mortgaging crisis, the real problem rests in two government operated institutions, Freddie Mac and Fannie Mae. Both organizations are similar, companies chartered by Congress and sold publicly, but both run against the traditional economic grain. The primary factor that reigns in private companies is risk, every move a company makes has a risk of putting it out of business, and so they are forced to be responsible with the money of their shareholders. Freddie Mac and Fannie Mae bypass this by being backed by the government. Any organization backed by the government cannot fail unless the government fails, therefore allowing for more risk by the company. Unsurprisingly, this was exactly what the two mortgage companies did, by introducing adjustable rate mortgages to low income, and in some cases, no income debtors. These people had little means with which to pay off the mortgage, but they got the mortgage anyway. Eventually, the companies had to raise the interest rates, and the debtors got blasted. This set off the current mortgage/foreclosure crisis we find ourselves in today.
While the cause of this crisis is easy to pinpoint, the solution cannot be...

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