The foreclosure crisis is the result of too many unqualified people getting loans, the result being more money was lent out than what is going to be paid back. This was due to the lifting of restrictions on the mortgage industry to further social engineering. We need to return to sound lending practices as we had in the past (and as practiced in Canada). One of the greatest factors that contributed to the housing crisis was stated-income-loans. A “stated income loan” is a loan given out to a person of an income that is not documented but verbally claimed. This loaning system is poorly contrived, and should be the first thing to be removed. However, the damage of this system has already been done. Much of this reform is already underway. But that alone won’t fix the existing crisis in the housing market/mortgage industry.
Every family involved in this is different and each circumstance unique. We can, however, split the victims up into groups that have been effected the most. There are four general groups that encompass the mass of those affected. 1) There are the builders who have empty houses and condominium units with their construction loans coming due. 2) There are home owners out there who are stuck in a loan without the option of refinancing, due to the decline in the value of their homes. 3) There are people out there who have found that the value of their homes have dropped so much that they have no incentive to stay. And 4) There are the people who simply can’t afford their current house; this could be because they lost their job, or because they were not honest about their income from the beginning. These groups encompass a majority of the victims and each needs to be treated separately to ease the burden we’re all carrying. You can’t call the banks a victim, but you can’t say the banks are guilty and should aid in the solution because what we are trying to do is to keep the system from failing. The banks are part of the system and if they fail, they will take many down with them.
The builders are potentially the straw to break this nations back. The idea that widespread foreclosures of large residential housing is very likely to happen, should be a serious concern. This would hurt the banks by effectively lowering their income. Builders commonly have a one year construction loan. If that one year was extended, that would prevent many foreclosures. The builders should be allowed to rent their condos and houses, using their rental income to cover the interest. This would stop the banks from foreclosing in the immediate future, and have a positive effect on the economy. This plan could be limited to when it’s effective, to one or two years. The construction loans would not be declared bad. This would also help the builders by giving them time to try and get themselves out of their bind. And the banks would have one less loan type to try and solve right away, the economy wouldn’t have as big a burden.