Foreclosure Bailout is Helping Perpetrators of Foreclosure Crisis and Not Sufferers
The foreclosure bailout measures are only helping the perpetrators of the foreclosure crisis and not the actual sufferers. The first thing would be to break the vicious cycle of foreclosures chasing the phenomenon of falling house values. This has led many to realize that there is no point in keeping up with a loan that is valued more than the worth of the house. Nearly 20 million families are thinking about walking away from such underwater mortgages.
Understanding this Congress initiated a new programme under Federal Housing Authority that would issue house owners new loans by the government based on the current value of the houses. But Wall Street wedged in and influenced the politicians. Banks are reluctant to accept immediate losses and so to save their faces in the name of modification they are just merely postponing matters. A new clause was inserted making it mandatory that all home equity loans have to be repaid before qualifying for such loans. The result was that there were negligible takers for the new measure.
The Congress can easily address this problem by saying that the loan can be got without the consent of the bank. If a corporation is in trouble the lenders agree to take a part payment in return for a share of any recovery made in the future. In the same way troubled house owners should be allowed to benefit in similar fashion. Lenders of second mortgages should surrender their claim on the property. The pivotal point is that it is the lenders and not the financial bodies like banks have the first right to get the new loans being issued by the government. For it to be so the programme has to be universal and should not necessitate the filing of bankruptcy by the house owner.
Some obvious rational and reasonable changes have to be made in the financial system itself to see to avoid a rerun of the present foreclosure crisis.
Important regulatory decisions having long-term results should not be made based on the temporary effect on the stock market. If stocks go up and down they should be allowed to do so. There is no coherence when the administration responds hastily to each crisis that crops up. It seems that the main focus of the government is to appease the stock market. The critical part of the activities of the Treasury, the Federal Reserve et all seems to have the same objective.
