With our economy in a downslide and increasing numbers of foreclosures worsening our economic problems, it is obvious that there needs to be some intervention in order to prevent more foreclosures. Home ownership has always been a key portion of the American economy and an integral part of the American dream. We cannot allow the current crisis to let more people lose their homes and become disenchanted about home buying in the future. Not only will the defaults on mortgages further destabilize the American economy now, but they will also cause problems in the years to come as less people decide to venture into home ownership again.
Therefore, the obvious solution to these ill repercussions is by keeping people in the homes they currently own and helping prevent foreclosures. My proposal to make this a reality involves three key parties: economically-troubled homeowners, banks, and the federal government.
As we all know, the Bush and Obama administrations have recently infused hundreds of billions of dollars into the banking system in order to help troubled banks stay afloat during this hard economic time. The purpose of this influx of money was largely required because banks had lost so much money due to mortgage defaults that they were left with too many foreclosed houses and too few payments on loans. As a result, lending trickled down to a slow stream; consumers now can't get the money they need in order to buy new homes because banks are afraid of more defaults.
I propose that the federal government pass a new relief program, but this time, it will help consumers directly, instead of giving banks money that they then refuse to lend out. This program should target those homes in which mortgage payments have not been made in three months or more. For these homes, the government will agree to pay the banks the mortgage for six months, leaving homeowners with no mortgage payments for half of a year. This will be enough time, hopefully, for these homeowners to get their finances in order and resume paying their debts once again. As a mortgage payment is often one of the greatest debts of a household, the removal of this burden for six months will be a godsend to these troubled homeowners.
In the meantime, banks will not be worried about their most troubled mortgages. They will be getting paid on nearly all their mortgages, either from responsible, financially secure homeowners who pay their debts on time every month, or from the government on the behalf of the troubled household. After the six months are over, there is a much higher probability that they will be paid on those troubled mortgages by the homeowners themselves, who have had six months to save thousands of dollars to pay towards their mortgages. As a result, the income of the banks will be much more secure, and they are more likely to lend out money to consumers. This will enable consumers to buy homes again--including some of the bank-owned properties that have...