As the foreclosure crisis has only grown worse by the month, and large banks are in danger of collapsing, the focus of government appears to be focused on helping homeowners save their homes from foreclosure. The government has stepped in having a number of distinct policies and programs that are designed to assist people suffering from the foreclosure crisis. With most of what government does, though, the people who are developed to benefit are actually becoming hurt, even though the parties who are most responsible for the financial crisis are socializing their losses.
The real estate bubble was inflated beyond all reasonable expectations of value at an growing rate once the Federal Reserve lowered interest rates in an effort to stay away from a recession soon after the crash of the dot-coms plus the 9/11 terrorist attacks. Rates had been lowered to below one percent, and people were encouraged to cash out property equity or acquire a brand new house. Even people with poor credit were able to obtain mortgages for relatively low rates, and they took advantage.
Banks looked the other way in the course of this boom, as several of the individuals setting lending guidelines had been just as taken in by the low rates and rising values as everyone else. Hedge funds on Wall Street were only too willing to acquire bundles of these loans and had been confident they would make dollars even on foreclosures. Property values were rising and individuals had been buying as quickly as they could, which meant the inevitable foreclosed residence could be sold for a profit.
But when the common awareness with the low quality of these loans spread throughout the economy, and property values stopped increasing, the whole house of cards started to fall. Sadly for those homeowners who made prudent decisions and didn’t benefit from the run-up in costs, the massive number who were facing foreclosure helped drag property values down even further. A likely response has been the calls from homeowners, concerned interest groups, and some politicians for a federal government bailout of homeowners.
The message of offering aid directly to foreclosure victims has been much more widely spread by means of the media than any description with the actions getting taken by the government to bail out the banks at the expense of homeowners. To begin with, the Federal Reserve has been creating new dollars out of thin air to give to the banks. The central bank has been injecting tens of billions of dollars into the financial system and are even thinking about about $200 billion additional in the near future.
On the other hand, direct injections of liquidity have so far failed to stimulate the economy. So now the Fed is left to its preferred tool of inflating the dollars supply and causing the dollar to fall in value. The price of goods like food and energy are going up drastically, which hurts the individuals who need to eat and go to work as a way to pay their mortgage. But it bails out the banks and helps them cover their poor lending practices. Needless to say, this can be a reflection with the fact that the banks are infinitely more influential in Washington than the typical person, particularly an average individual too busy trying to stop foreclosure to be concerned about what is going on in politics.
HOPE NOW and Project Lifeline are two voluntary programs the government has put together and presented as a saving grace for homeowners facing the loss of a property. Essentially, the programs are absolutely nothing additional than media relations programs where a handful of main banks within the country are voluntarily offering homeowners a variety of programs to save their houses. This may be through repayment plans or loan modifications, or freezing the interest rate for a set time period. But these have constantly been supplied to homeowners who can qualify for them — putting a fancy new name on them doesn’t adjust what the programs actually do.
Thus far, these have been the only responses from the government in regards towards the foreclosure crisis. Even though it would possibly be better that they stay out of the scenario entirely, the Federal Reserve continuing to inflate the money supply and manipulate interest rates will have unintended consequences for homeowners though benefiting the largest, most politically-connected banks. Monetary bailouts and voluntary programs for the banks. Inflation and currency collapse for homeowners.
Homeowners attempting to uncover some way to stop foreclosure could be superior off trying to negotiate with their banks at this time and trying to work one thing out, even if just for the brief term. This can more than most likely lead to a much far better likelihood to avoid losing the home, as opposed to waiting for a unique government program to save them. For instance, there are some proposed changes to bankruptcy laws that might enable courts to lower the total amount owed on the mortgage to reflect current market conditions, but absolutely nothing is set into law yet and certain members of Congress as well as the banking market will almost certainly be profitable in blocking the adjustments, as they benefit folks as an alternative to corporations.
From changing the bankruptcy laws in 2005, to manipulating interest rates from 2001-2006, to injecting tens of billions of inflated dollars into failing banks, substantially of what government purports to be helping the average individual instead only serves to take what little funds they are allowed to keep immediately after paying taxes. The temptations of the easy credit conditions fostered by the government that inflated the housing bubble doesn’t absolve homeowners of their individual responsibility to educate themselves on how mortgages function and what may well take place if the great times did not continue. However it isn’t surprising that some of them also took advantage of these conditions to profit within the short term, even though setting themselves up for a economic collapse down the road.