The foreclosure crisis in the United States has reached epidemic proportions. The perfect storm of the sub prime lending issues, coupled with bank failures and layered with a sharp rise in unemployment has lent itself to more and more people losing their most cherished investment, their home. How do we solve this foreclosure problem? Many a great minds have pondered this question over the past year and many home retention programs have been launched.
“Loan modifications alone don’t eliminate delinquency….nationally more than ½ of modified loans fell delinquent within 6 months”
John Duggan, Comptroller of the Currency
Here I offer a few suggestions that I think will not only begin to mitigate foreclosures in the United States but also put homeowners in a position to have the earning capacity to pay their mortgages over the long term.
The subprime lending issue, which primarily dealt with individuals who could not afford true “home ownership” as interest rates adjusted, was just the beginning. Those living on the fringe of society who had finally realized the “American Dream” of home ownership were faced with the stark reality of not having enough resources to pay what they owed. Many have blamed the banks for giving these individuals mortgages, and many have blamed the individuals for taking on more than they can handle. Although the subprime market was the tip of the proverbial ice berg, the real crisis began when those with conventional prime mortgages began to lose their jobs and fall behind in their mortgage payments. The increase in unemployment around the country has caused more and more homeowners to deplete their savings in an effort to keep their homes. The government has implemented some programs to help homeowners modify their mortgages, only to find the re default rate on these temporary modifications are on the rise. Some areas of the country have been hit harder than other areas, so some argue that it is not a systemic issue but a regional issue. I believe, at the root there is a systemic issue. Those most in danger of foreclosure are those that have the least education. These homeowners, many who obtained subprime mortgages, were and continue to be the most vulnerable to any economic fluctuations in our society.
Mortgage modifications and stimulating the economy though job creation are all viable solutions to curbing the tide of foreclosures. When the economy recovers, the jobs that will be created will be very different from the jobs that were eliminated. Employers will naturally increase the use of technology where possible to cut costs, including labor costs. Those jobs that will be available will require individuals to have higher levels of skills in various industries. Individuals in many instances will have to increase their education in order to increase...