While tax cuts, refinancing and subsidized federal loans can temporarily solve a housing crisis, it can never take out the roots of the weed out of the ground. What was it that threw us into a foreclosure meltdown in the first place? Did people suddenly lose all their money? Perhaps the government failed in some way? No. The fact of the matter is that people began to borrow money through a sub-prime, adjustable rate mortgage loan and then couldn’t repay the lenders.
The government is ready and willing to do whatever it takes to fix the housing crisis and their swift efforts so far should be praised. Certain protocols, such tax rebates to homebuyers, certainly tided over the crisis for a short period, however it’s by no means a final solution. For one example, look at HR 3221, more famously known as the Foreclosure Prevention Act of 2008. Filled with a number of different foreclosure prevention actions, it was almost certain that foreclosures would slow down. With those new measures in place the housing market will surely recover…right?
Wrong. According to Luke Mullins of U.S. News, “…almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months.” 1 Statistics compiled by RealtyTrac and published in CNN Money state that over “3.1 million homes filed for foreclosure in 2008” 2.
With this news, the government saw that the problem still existed- and was growing. Armed with legislation, they came up with the Foreclosure Prevention Act of 2009, an eerily similar bill that was “destined” for better results. As it could be guessed, the bill did very little work either. In the most recently updated foreclosure check-up published by RealtyTrac, “foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 937,840 properties in the third quarter [of 2009], a 5 percent increase from the previous quarter and an increase of nearly 23 percent from [3rd Quarter] 2008. One in every 136 U.S. housing units received a foreclosure filing during the quarter — the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.” 3
Why didn’t the Foreclosures Prevention Acts of 2008 and 2009 work with total success? After all, with loan modifications and tax incentives, the American people should be able to pay off their large loans right? Well, human behavior has one trait that the government never put into their calculations. That trait is disturbingly simple: No matter what program the government puts into action, they cannot dictate how people choose to gain and spend their money.
Think back to when the sub-prime adjustable rate mortgage (ARM) first appeared. Baited by a simple, low-interest, low-rate mortgage, people took advantage of the new loan modification, acquiring the homes of their dreams. With that, a dangerously large housing bubble rapidly inflated. The sub-prime mortgages, interest-only financial structures and other...