Rampant housing foreclosure in the United States is the direct result of a socioeconomic Katrina. Housing prices increased at monumental rates; home buyers purchased more expensive homes than they could afford, and at times, mortgage applicants falsified loan information to obtain a home loan. Further, to boost homeownership statistics and thus, provide citizens with the perception of prosperity, the federal government urged lenders to extend loans to high risk consumers. Brokers were encouraged to process as many loans as possible to reap the commissions for every home sale. When housing prices plummeted and people began to lose their jobs, the resulting housing foreclosure crisis devastated homeowners and families throughout the United States. The social aspect of this economic disposition calls for more than a simple economic solution. The only way to fix the foreclosure crisis is to provide limited economic assistance to impacted consumers, except banks and consumers to be more responsible with lending and borrowing decisions and allow the free market to self correct the housing and lending industry.
The only we action should take, is to temporarily protect consumers from foreclosure caused by the inability to make a mortgage payment. To do this, our government will need to assume responsibility for the principle portion of the loan and rent the home back to the family in danger of foreclosure. The rent would be based on the principle outstanding mortgage, multiplied by a flat interest rate. The rental payment will provide the bank with an interest only cash flow. When the family has a more stabilized economic situation, the bank and the consumer can then renegotiate the mortgage on the house. To avoid a future foreclosure, the interest payment will have to be set at a flat rate somewhere around 4.5%.
Further, states will temporarily need to cease assessing or collecting property taxes. This is a way for people with loan balances higher than their current home value to obtain more economic security until the housing prices fix themselves. Our Government should refrain from controlling the lending process with the exception of the enforcement of laws against fraud.
Moreover, our government should cease its encouragement of lending to high-risk borrowers. If high-risk borrowers had been prevented from overextending themselves, we may not have experienced the widespread breakdown of our housing industry. The only economic intervention should be limited to ensuring that people in need are buffered from feeling the repercussions of foreclosure and help stabilize the family’s economic status.
The social aspect of the foreclosure issue requires that people change their expectations of how lending should work, what should be done in the lending process and what to do if a lending situation fails. The lending industry needs to reestablish its fiscally conservative reputation.
Lenders need to guard against pressure from our...