The foreclosure crisis is not an unfamiliar one. However, people say that this is bigger than the Great Depression. Even though this is true, there should be a simple solution. In fact, so simple, that it just takes a few steps and back-tracking.
So the foreclosure crisis is believed to have started because no down payments were made on mortgage loans and banks were giving out subprime loans, or a loan that is given even though the borrower was not qualified for them. To make sure everyone understands the loan system, I will explain very briefly how the loan system works.
A borrower requests for a certain amount of money from a bank for a loan. Often times this is done through an application. They provide employment information and a credit check is involved in most circumstances. The bank then decides whether or not they will take the risk and grant the loan. It’s a risk because banks do not have access to a great sum of money. The Federal Reserve Board, or more commonly known as the Fed, sets the standard and requirements for banks. If the bank exceeds their limit, they are thus, “broke.” This is why banks take risks and put trust in their borrowers – trusting that they will pay the money back with interest. If every borrower breaks their promise, the bank would end up broke.
So what about foreclosure? Foreclosure is when the borrower does not pay back their loans on a house. The bank pays for their house and the borrower owes the bank. If the borrower is unable to pay for whatever reason, or they choose willingly not to pay, then the bank takes the house away from them giving them a 30-day notice often times.
This helped create the start of an economic crisis – a greater level of concern. The Federal Reserve Board also controls interests and taxes in America. They also allow people to know whether or not the nation is in inflation. The cause of inflation is being debated, but it can be one of two things – money “sitting” being untouched for a certain period of time or when money is in high-demand and is being forced to print more. The more of an object – the more its value goes down – same with the dollar. That is often what inflation is described as.
When money is in demand and inflation starts, the prices of products go up. When the prices of products increase, companies in turn are struggling to make a profit. They use products to keep their companies running. Instead of cutting back on costs or production, they lay off workers and/or cut back their hours. This leaves many workers either homeless, struggling to find a job, or trying to work extra shifts at more than one job. So not only do you have a foreclosure and economic crisis – you have a poverty crisis.
Sound familiar? It should. This is very, very similar to what happened in the 1930s with the Great Depression – however, it didn’t happen at one sudden time. It happened step by step in this same manner over a period of time.
So how can we solve it? Well, it is...