The Foreclosure Solution Lies in Understanding the Problem

The solution to the current foreclosure problem lies in understanding the problem. There is no one silver bullet for it – this has to be understood from the onset. For quite some time the leaders of USA have been concentrating on injecting stimulus funds into the system through the traditional routes – the banks.

Today it is not unknown to anyone that the measures so far taken have led to a liquidity trap. Billions have been sent into circulation primarily to bailout banks. But money is not flowing. Economists say that the money has no velocity. Banks are hoarding this money. Thus there has been no positive impact on the foreclosure scene.

A liquidity trap is not difficult to resolve. All that the Treasury and the Federal Reserve have to do is to avoid the banks since the latter are not willing to lend out money. The question now arises is how can this be done so as to see that the money reaches the ordinary man. This alone will solve a major part of the problem and infuse health into the economy.

The basic foreclosure problem has of late being sidetracked and the limelight is on more glamorous issues like mortgage-backed-securities, credit-default-swaps that have been used to hedge these securities and manipulation of petroleum prices by the investment banks. It is difficult to keep up with failures on all these fronts that have led to the building up of a perfect tsunami. It is now commonsense that the solution has to be comprehensive covering all aspects. Thus the focus is to move away from the banks to the main issues. A plan has to be developed first of all to reduce the number of reo homes.

The new housing projects that had come up in the suburbs have been the worst hit by the foreclosure crisis. For instance nearly each block of Gateway Park locality near Sacramento is dotted with foreclosure signs. This is bound to result in falling prices. Within a short time this will affect the localities where the houses are not new but old. A combination of falling value of houses and weakening currency will put on hold all potential buyers. The suburbs blighted by foreclosures will eventually become ghost towns. Even investors will feel scared to enter these eerie zones! Those who plan to rent out units may purchase some houses but no one would like to make long-term investments.