The Foreclosure Mess

Posted in Foreclosure, July 2nd, 2009 | 1 Comment »

None of the remedies are working. Foreclosure crisis continues to be a mess. Both the Bush and Obama governments toed the same line of throwing trillions of dollars to the banks and lenders. The financial tsars were thrilled to pocket $1.2 trillion from the toxic assets that the federal government covered. They pocketed billions more in direct handouts. None of the money is being used to advance loans and bring an end to the credit freeze.
On Tuesday 23rd June, Walls Street Journal noted, “The Mortgage Bankers Association cut its forecast of home-mortgage lending this year by 27% amid deflating hopes for a boom in refinancing.” This very same association had complained about the much hyped Home Affordable Refinance Program that the amount was “very low”.

The housing crisis has many facets. On the one hand the mortgage market is tight with loans not being advanced. This is leading to a dearth of buyers. Secondly people are losing their jobs and this makes it difficult for them to keep up with mortgage payments. The situation is potentially loaded with further foreclosures.

The Obama government is following the same lines of remedial measures as the Bush government and addressing the wrong side of the dilemma. Obama however was prudent to at least kick off a stimulus programme to address the unemployment problem. But the prime focus is on giving support in dollars to the lenders – the group that started this crisis.

The situation is so grim that the state and local governments have been compelled to make heavy budget cuts. Yet the federal government will not come forward with help for them and make up for the deficits. Workers are being fired – yet they were the most dependable when it came to mortgage payments.
California failed to get White House guarantee short-term notes worth $5.5 billion so as to avoid heavy cuts in state and local workforce. By it school teachers and prison guards are going to be severely affected. In glaring contrast Citigroup has been given a staggering $300 billion to guarantee the soured assets. The bank has benefited from the underlying principle that is being followed – these banks are “too big to fail”. Yet it is these banks that have perpetrated this crisis. The principle to be followed should be that they are too big to save.

As per the current findings of the Federal Reserve in seven consecutive quarters the household wealth of Americans has fallen by $14 trillion.

 


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Julie Parker

Julie Parker

Julie Parker was born in March 19, 1983, in Lancaster – Los Angeles County, California. Her father is an experienced economist and businessman, who motivate her taste for the real estate market. Recently, graduated in Economics and now focus her studies in a PhD. Now she’s a consultant and webwritter of ForeclosureListings.com

One Response to “The Foreclosure Mess”

  1. Dr Andreas Lung Says:
    July 3rd, 2009 at 5:30 am

    The reason why the billions of $ given to the banks didnt work as a remedy is that fact that american credit law isnt changed yet. Any houseowner who ll see a house of same quality than his own but for less money than his remaining debt, can still quit paying his debts, and leave the debt to the bank who looses the whole amount between debt and market value. since marketvalues still falling the tendency will favour even an increase of forclosures. thats what we se now. The tax bonus for first time home buyers is helpful but came to late. The positive and stabilising effect of this measure couldnt anymore outweigh the effect of falling houseprices which will even result in an acceleration in loan defaults. this will result in an exaggeration of falling house prices. Of course there will be an end somewhere but it can stil take a while and its hard to say at which level of houseprices the public demand will lead to an increase again. Im afraid people wait until it will be a level that is nearly ridicoulous and of very low risk to new buyers. However this will lead to an immense turnaround and houseprices will explode. Prices can be estimated to gain 50% of the losses since 2007 within short time. However its hard to say when the turnaround will come. Reagions like california Los Angeles and Miami are clearly in accelerated “Price down” mode. Other reagions are at the brim of stabilization, with slight downside tendency still. he risk is that bad economic news will trigger the fall of prices in that regions again, and then it cant be stopped until we are down another 25 % unless Obama takes new measures to stop it. The only measure however that is surely effective is a change of law, in that way that homeowners will stil be responsible for the remaining differnce in debt if the forclosure earns less than the bank should get. I dont know any country where the law is still like in USA. Its ridiculous that noone seems to realize that this is the key measure. I only hope that Obama or one of his staff will pick up this posting and put it on the table for discuss. Im sure Obama is smart enough to realize that this is really worth a try. He is a lawyer by proffesion and what i dont know is weather the changed law can also be applied to loans that where made in the past. If this could not be assured the effect of the new law will still be a improve – asteady improve but it will be about 30 times slower compaerd to a law that applies to old loans too. In this case the improve might be so weak that downspeed of houseprice might not stop at all but just slow a bit. So far my suggestions . Dr. rer nat. Andreas Lung

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