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So much of the average consumer’s wealth seems to be tied up in housing, but I have to admit I never realized just how much until this crisis came to light. Consumers borrowed against their house, used it as an investment, put msot of their personal wealth into it, but much like any investment, doing so carried risk.
For many homeowners, that risk presented itself when prices began to plummet. Suddenly their mortgage didn’t look so attractive and they could no longer borrow against a house that’s suddenly worth 30% less than they paid for it, and the result has been rising foreclosures and a lack of spending power for the general population. Now I’ll be the first to point out that consumers hoarding their money and saving as opposed to consuming nonstop while riding a mountain of debt is definitely good for the economy in the long run, but we’re not in the long run yet. With that in mind, help has been coming in from a variety of angles.
Perhaps most importantly, the government has taken a very active role in helping to alleviate the housing crisis. This has included (but not limited to) taking over Freddie and Fannie Mac after they were drowned in their own risky mortgage securities. They now use Freddie and Fannie to implement more favorable terms for struggling borrowers. If you’re a current homeowner that pays your mortgage, spending your tax money to aid Joe Bagadonuts who couldn’t afford his home doesn’t sound all that appealing, but if the recent efforts are successful, then that will mean stabilizing housing prices, which would have a beneficial effect for everyone. Well, everyone who owns a home anyway. Other government efforts include a possible $15,000 tax credit for homebuyers that purchase within a year, if the Senate’s stimulus bill passes that is. If that’s not incentive to pull the trigger on a home, I’m not sure what is.
What else can be done? A recent interview with HUD Secretary Shaun Donovan spoke to what steps need to be taken:
“Well, let me say that there are really four things that we have to do. First and foremost, this crisis started as a mortgage crisis, but what is really driving the foreclosure crisis right now is that people are losing their jobs. And so job number one is to pass a recovery bill that will add three to four million jobs in this country. That’s first.
Second, we have to limit the number of foreclosures. I’ve seen recent numbers that almost half of the home sales in this country are distressed sales, right now. And so, as the President has said, we will have a comprehensive, aggressive plan to limit foreclosures, announced in the coming weeks.
Third, we have to make sure that the foreclosures that actually happen, don’t have a devastating impact on families and on communities. And HUD is really the lead in doing that, through neighborhood stabilization efforts, but also efforts to make sure there’s adequate rental housing, and to limit homelessness. And there are in the recovery bill, significant efforts at doing all of those things. And then finally, we’ve got to put a bottom on housing prices and begin to help the market turn back upwards.”
Whether the government has the ability to put a bottom on housing is the real question.
Last 3 posts by phillenbrand
- Loan Modification Fix - July 20th, 2009
- Free Home Loan Modification Help For Homeowners - July 10th, 2009
- Would One Mortgage Regulator Work? - May 21st, 2009
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