Coping With The Flood Of Foreclosures
December 5th, 2008
Coping with the flood of foreclosures should be on the top priority list of the government but unfortunately that has not been so with President Bush and his fellow Republicans. Henry Paulson, the Treasury Secretary has refused to use any amount from the allotted $700 bail out rescue package to directly help the foreclosure victims. It is hoped that the attitude of the administration will change in the forthcoming year with President-elect Obama formally taking over the reins. The Democrats feel that it is only by tackling the foreclosure crisis that the economic gloom will clear.
Jack M. Guttentag of Wharton (Professor emeritus of finance) said, “The financial sector weaknesses all originate in the housing market. If we don’t solve the housing problem, then the weaknesses in the financial sector are going to continue to multiply.”
Sheila Bair, chairperson of FDIC has crossed swords with the Treasury and Bush administration over this issue of not giving foreclosures top priority. She said, “Minimizing foreclosures is essential to the broader effort to stabilize global financial markets and the U.S. economy.” Professor M. Wachter of Wharton said that the crux of the problem is to break the vicious ring of foreclosures pushing down real estate prices and thus causing more foreclosures. She added that the housing crisis is the major cause of the general economic mayhem that the nation is experiencing.
There are many who hold contrary views. Professor Kent Smetters of Wharton (insurance and risk management) strong feels that those who made silly mistakes do not deserve to be bailed out. He opined that both the lenders and borrowers should pay for the consequences of their action and pay for it. Trying to block the consequences will not stop the wreckage of the financial sector but will only postpone the inevitable. He strongly felt, “The alternative is to say we’re going to let the train wreck happen. What that does is to allow us to clear the tracks sooner.”
On 26th November 2008, $800 was infused into the credit markets according to announcements made by Federal Reserve and Treasury Department. This included an amount of $600 billion that would be utilized to purchase debts issued by Fannie Mae and Freddie Mac.
This gesture immediately pushed down interest rates of traditional long term fixed rate mortgages from 6% to 5.5%. There were also reports of a rush of loan applications from foreclosure victims wanting to refinance. This has been analyzed to be a vital step towards putting a break on downward fall of housing prices.
- Fewer Foreclosures Among Low-cost Brooklyn Homes
- Bank of America is a Lagging Behind in Loan Modifications to Prevent Foreclosures
- The Aftermath of the Housing Boom is Followed by Foreclosure Doom in Homestead
- Lenders Being Legally Challenged for Activating Predatory Lending
- Foreclosures Have Made Life for CEO’s Expensive and Fraught With Fear
- With Foreclosures and Unemployment Continuing it is Doubtful if Recession is Over
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