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The Root Of The Housing Crisis

1001 words - 4 pages

Recent figures show nearly 3 percent of all U.S. home mortgages are now in foreclosure, and experts are saying that number will rise for at least another year. The foreclosures add to the growing pool of unsold homes in a market that has been deteriorating for the past two years. This is driving down prices of all homes, most of those whose owners have never missed a payment. That’s why it is in everyone’s interest to stop this wave of foreclosures and get the unsold inventory off the market as quickly as possible. Unfortunately, the power to solve this crisis is in the hands of very people who caused much of the problem in the first place: bankers and the federal government. Pressured by federal bureaucrats after passage of the community reinvestment act, bankers gave mortgages to people who should never have gotten loans, asking for nothing down and little proof of income. Now, having repossessed the homes, the banks have become sellers, a role for which they are woefully ill-suited. Banks are notorious for letting offers pile up on their desks for months at a time. Would-be buyers – discouraged by the lack of response and ultimately enticed by the plethora of more accessible homes on the market – move on to other properties, most of which are more attractive than empty bank properties because someone is living there and taking care of them. Making matters worse, bankers give Realtors incentives to steer buyers away from the foreclosed properties by offering smaller commissions than the going rate for other homes. Is it any wonder that the inventory of foreclosed homes continues to grow? There is a way out of this mess, but it will require exactly the kind of short-term pain that everyone in government has been striving to avoid since the foreclosure crisis started. Here are three key steps: The federal government must quit its incessant meddling. There is no question that federal laws and policies laid the groundwork for the crisis. The effect of these laws and policies was a pressure on banks to abandon solid, time-tested lending criteria such as a person’s income, debt ratio and credit history in an effort to get more minorities into homes. Banks took these shaky loans, bundled them and sold them off as securities, which seemed safe enough since the government behemoths Fannie May and Freddie Mac were providing a safety net for everyone involved – everyone, that is, except the U.S. taxpayers. Congress needs to repeal any law that pressures banks to loosen loan requirements . At the same time, it needs to remove some of the federal guarantees that have encouraged unsound banking practices. Bad banks, no matter how big, should be allowed to fail. The remaining banks would be shocked back into the kind of sensible lending practices that would ensure a healthy system for decades to come. Which leads us to...

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