The Urgency of Obama to Tackle the Foreclosure Problem

The urgent necessity of President elect to tackle the foreclosure related crisis couldn’t be over stressed. It is not about statistics and figures but real people who are in danger of being thrown out of their homes and hearths. So the new incumbent to the White House must act here and now putting campaign talk into practice before the situation worsens. There is no other way of avoiding recession turning into sour depression.

The first step is the extension of unemployment benefits by the Congress for at least another six month. But it must be kept in mind that this is only a soothing temporary balm and is not the answer to the foreclosure malaise.

The foreclosure crisis had its origins in the defaulting of the sub-prime mortgages from 2007 summer. The number ran into thousands and then millions causing a national tsunami. The defaults are continuing. To stem the tide of foreclosures these defaults have to be stopped. Otherwise the vicious cycle will continue to plague the real estate market. Defaults will lead to more foreclosures and this in turn will deluge the market with unsold units. Prices will further fall. But the greatest danger of all is the loss of morale of the people.

In previous instances the nation had recovered from the crisis because the housing sector reacted to the recession but was not the main cause behind it. Today prices of reo homes have fallen because of foreclosure of houses. The people have no way out because of rising unemployment coupled with rising food and fuel prices.

Today the risk is not just humanitarian but is concerned about the basic problem of preserving the framework of democracy as well as the future growth of America. The government has limitations because of the complicated nature of the foreclosure mess. Many mortgages were packaged, sliced and sold as securities to investors around the world. Paulson of the Treasury suggested that the federal government buy these toxic pieces of paper from the financial houses to allow flow of some liquidity in the market. But the basic problem is that the mortgages would be the same even if the holders changed hands. The debtor would continue to boil in the foreclosure soup. Thus the crux of the problem is how a help line can be thrown to both – the lenders as well as the borrowers simultaneously and immediately.

It the solution to this basic problem that will be able to reach the primary target – reinvigorating the housing market.