Despite efforts by the new administration in Washington and Congress to stem the epidemic of foreclosures, flaws in the plan offered by the White House to curb the crisis leave open a flood gate of problems that will send the U.S. economy into further economic chaos.
The U.S. has now experienced an estimated 4 million foreclosures in the crisis, and Housing Predictor forecasts under the present plan another 3.6 million homes will be foreclosed through 2010.
The housing crisis hits home for everyone whether or not you are one of the millions of Americans directly affected by foreclosure. President Obama's plan, carefully crafted to pump $275 billion into cutting the number of foreclosures, lacks the punch to solve the crisis. The plan is medicine that is needed, but fails to address nearly 40% of property owners now undergoing foreclosure, investors and owners of other properties that are not owner occupied.
Designing a rescue plan that is fair and equitable in a time of crisis may be impossible to attain. Designing a proposal that does not punish people who have been responsible and those that have not, seems an unlikely job without inflicting further damage to the overall economy.
Since Washington is where political battles rule the outcome, Congressional leaders fear emotional public outcries to treat homeowners who have been making their mortgage payments on time fairly against those who are threatened with foreclosure. The problem lies in the fact that until there is a floor put in place for deteriorating real estate markets, the economy will not begin to stabilize. What leaders fail to consider is the overall public good in the worst economic crisis since the Great Depression. Tip-toeing down that tightrope has become a daunting task for Congress to master.
The government's failure until now to do anything serious about halting foreclosures is tragic. The broad magnitude has been forecast by Housing Predictor for nearly three years, and the tsunami has been made clear by Representative Barney Frank (D-Mass.), Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation and many other government leaders.
Obama's plan is a start, but without a rapid increase in fire-power to stop foreclosures owned by investors, the plan lacks the teeth to improve the national economy for the betterment of all. The mortgage crisis took more than 10 years to develop on Wall Street and will take many more years to solve, despite political maneuvers as home prices deflate.
The largest single investment most people make in their lifetimes is purchasing a home. Protecting it is in everyone's best interest. The President's plan draws $75-billion from the financial industry bailout money approved by Congress to help those losing their homes, but would be provided to homeowners through bankers on a voluntary basis. If we have learned anything from this crisis, it should be that bankers won't do anything voluntarily to help society. More than 1 in 4 homeowners are under water on their mortgages nationally. At least $500 billion would be needed at present to make a dent in the massive number of problem loans that need to be modified, and for every month that passes without assistance an estimated $100 billion more will be needed, according to estimates.
The job of government is to respond and to act in times of crisis. Separating the good from the bad is never an easy thing to do. If this sort of plan is going to work at all, efforts must also be made to quickly implement flat rate reductions in mortgage amounts, and the losses would have to be shouldered by tax payers, who are unwilling to handle such a burden since most of the banks that caused the crisis are insolvent at best.
It may not be politically popular, but it is the only way we see out of this mess.