Foreclosure Crisis CausesAugust 31st, 2008
Author: admin
Every bailout the government has given to the banking system has been designed to stabilize the housing and stock markets, keep access to credit open, and keep people in their homes. But despite these stated goals, all that has happened is the banks are hoarding the free money, jobs are still being lost, and homeowners are going into foreclosure in record numbers.
Banks and the government worked together to enrich themselves through the real estate boom and turn communities into dumping grounds for easy loans. Now that the bubble has burst, banks and the government have been working together to ensure that only the people in those pump-and-dump communities feel the effects of the meltdown.
But it is not just that nothing is being done to help people stay in their homes. The government has come up with numerous programs ostensibly designed to help people stop foreclosure in certain instances and help borrowers work with lenders to modify mortgages.
An even worse problem, though, is that these programs take money from everyone else through inflation to help a very, very small number of homeowners. And if the programs are ineffective (which they have been so far), they may actually cause more people to face foreclosure.
All of this inflation where the government prints money and throws it at banks will also result in higher prices down the road. The banks are hoarding the money now in order to cover future losses they know are coming from other bad investments, but eventually they will begin making poor loans again, inflating another bubble before another collapse.
One argument that has been made is that it is far too difficult to throw small amounts of money at hundreds of thousands of homeowners to stabilize the system. So the government throws large amounts of money at a few small institutions, which is supposed to help everyone by maintaining faith and support of the financial system.
The problem is, these banks, once the government bails them out, have absolutely no incentive to work very hard with homeowners to save homes from foreclosure. With essentially free money, banks can sit back and do nothing, crying for more money when more people face foreclosure.
And this is exactly what it seems the banks are doing. Create a crisis, deliberately fail to respond to the fallout, cry for a government handout, use the bailout to act even lazier, not respond to further fallout, cry for more handouts, and so on.
Also, the few government programs designed to help homeowners work with their banks put restrictions on the lenders and require them to recognize losses on delinquent loans. So obviously, the banks are very concerned about having to admit to even more losses caused by bad mortgage loans, which might drive their stock prices down.
There is no real incentive for the lenders to take losses on loans and work with borrowers to restructure defaulted mortgages. In fact, there is a much larger payoff if the banks keep the foreclosures, do nothing to respond to them, and go to the government claiming a crisis that requires enormous amounts of taxpayer money to solve.
The bailout plans (especially the most recent $700 billion one) have required nothing from the banks other than that they be in serious trouble and need money. There are no restrictions and the banks can dump these bad loans directly onto the government, instead of having to work with homeowners.
The government has given the banks an incentive to keep making bad loans and then never address the problems caused by shoddy lending guidelines. The more people they foreclose on, the more free money they can cash in on from the bailout plans. So nothing will continue to be done to help homeowners stay in their homes.
The ForeclosureFish website has been created to provide homeowners in danger of losing their houses with relevant and important mortgage help and resources. The site describes various methods that may be used to save a home, such as foreclosure refinance loans, mortgage modification, short sales, bankruptcy, and more. Visit the site to read more articles about how foreclosure works and how the process may be avoided before it is too late: http://www.foreclosurefish.com/
