Foreclosure Crisis Worsens As Congress Delays Passage of Plan

Posted in Foreclosure Crisis, September 26th, 2008 |

Ben Bernanke, Federal Reserve chairperson warmed that the foreclosure crisis would worsen into a recession if the Congress delayed passage of the rescue plan. Unemployment would shoot up and so too would foreclosure of properties. Above all any procrastination would risk recession. The issue at stake was the $700 billion bail out plan chalked out by the Bernanke and Paulson.

But despite the blunt warnings the senators remained stubborn. Leaders from both parties wanted substantial changes in the proposal that has the backing of the White House. The conservatives among the Republicans shied at the very idea of governmental interference in the private capital zone. Nevertheless it seems that ultimately the bill will see daylight. Democrat Senator Dodd was for quick action.

The wrangling has not soothed the nerves of Wall Street. The Dow Jones fell by 161 points as indicative of the feelings. Initially the stock market had been euphoric but the dithering by the Congress is causing jitters. Oil prices too fell after the wild rally of the previous week. It fell to less than $107 per barrel.

To make matters worse the FBI has stepped in. It will be investigating irregularities in the activities of the financial houses that collapsed and were the immediate cause for this massive bailout plan. According to officials the FBI is focusing on possible fraud in happenings of the mortgage giants Freddie Mac and Fannie Mae as also Lehman Brothers and AIG. The individuals under suspicion will be scanned as also the financial bodies. The law enforcement officials chose to remain anonymous about these announcements because the investigations have already started and are in the preliminary stages. This brings 26 numbers of corporate lenders under the cloud since the last one year.

The spokespersons of Fannie Mae and Freddie Mac as well as Lehman Brothers were not available for immediate comment. Their woes are tied up with the sub-prime mortgages and ensuing foreclosure crisis.

Bernanke said, “The financial markets are in quite fragile condition and I think absent a plan they will get worse.” He gave stern warnings that with the non-functioning of credit markets, unemployment will become rampant and more houses will come under the foreclosure hammer. He said, “GDP will contract” and that it will become impossible for the economy to recover “in a normal, healthy way.”

What started as a cruel game of foreclosure between mighty lenders and humble borrowers has reached out to threaten Walls Street.