There Can Be No Solution to the Financial Crisis Without Tackling Foreclosure Rates

foreclosure houses

The present financial crisis began with the foreclosure numbers and no solution to it can be possible without tackling the foreclosure rates. This catastrophe is the worst America has been facing since the 1930’s.

The government has not remained a neutral bystander allowing things to drift but has initiated several measures. In its initial phase the focus was on shoring up the financial bodies that had gone into the red – undercapitalized and collapsing without the confidence of its creditors. The target of the government was to prevent the system from falling flat and to some extent this has been achieved. It could have been far worse if the government had not taken certain measures. This first phase is not yet over. Fires are flaring up here and there and newer methods for re-capitalizing banks are being mulled over. But hopefully the fear of major collapses has retreated.

In phase two the target is to reduce the interest rates for mortgage borrowers. This has not been given much priority. It helps some but not those who are on the frontlines battling foreclosures. In the middle of recession the lowered rates have set into motion some refinancing activity. Those who had taken loans from Fannie Mae and Freddie Mac or whose loans had been insured by Federal Housing Administration (FHA) are benefiting. To qualify the borrowers must have some equity on their houses and a good credit score. It means that good chunks are left out from this thirst quenching drink.

Despite all this foreclosure houses are jamming the market causing supply to outstrip demand by unimaginable gaps. None of the programmes that have been launched (Hope for Homeowners and FHA Secure) and Hope Hotlines or foreclosure moratoriums have made any impact and reined in the foreclosure numbers. Amendments of bankruptcy laws are being debated and it is too early to say if it will bear any sweet fruit.

To have a major impact on foreclosure rates there must be a sizeable number of mortgage modifications. Some halfhearted efforts have been made by the private sector but it is not enough to turn the tide. Basically the loan balance is not reduced and this is leading to borrowers running into default again and again.

The confidence in the financial assets and its quality has to be restored. Otherwise investing will not take off afresh.