The foreclosure crisis was one of the harbingers of the coming economic recession. This was the issue that shifted the focus of the 2008 presidential election from the Iraq War to the economy. As one can imagine, many individuals and families are currently hurting as a result of this foreclosure crisis. High unemployment rates and lack of job creation leave very few options for already struggling homeowners. Because the housing industry composes such a large part of the American economy and affects so many Americans, it is necessary for the federal government to be directly involved in a solution to the foreclosure problem. Like the New Deal programs during the worst economic situation in history, the government must again be proactive in dealing with these extremely difficult circumstances and aiding American homeowners.
One way in which to solve the foreclosure crisis is to keep people in their homes. The most effective way to ensure this is to institute a foreclosure freeze, similar in purpose to the banking freeze of 1933. The freeze would calm anxieties about foreclosure and allow the housing market to stabilize. Calming these fears is probably the first step to solving the problem. Otherwise, panic will continue to wreak havoc on the housing market and the larger American economy. Supply would decrease or at least level out, possibly creating more demand and a slight increase in housing values. The important point here would be the stabilization of the market. Also, it would be rather pointless to continue building new homes when existing homes are being repossessed and there is no need to. Unfortunately, when new homes are not being built homebuilders do not have work to do. The effects of foreclosure reach past those in danger of losing their homes to other professions. Underemployment may be an unintended consequence. However, a recovery of the market will once again provide opportunity.
In addition to a foreclosure freeze, the government may have to bail out homeowners in danger of losing their homes in the same way it bailed out the banks and the financial sector. To do this, the government will have to set aside tens of billions of dollars in emergency foreclosure assistance and future mortgage payments. To assist low-income homeowners, the government should voluntarily make mortgage payments for up to five years. To assist high-income homeowners, the government should make no-interest loans available to them. This would provide a stabilizing revenue source for the housing industry. This assistance would apply to homeowners deemed by the government to be good investments. Those homeowners who would be able to or have shown the ability to pay for their homes prior to the economic downturn would apply.
The government bailout would be sort of like an investment in homeowners. Families that would be able to sustain mortgage payments in the future, as determined by the Federal Housing Authority, would qualify...