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    Current Issue 610 Revised

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    Xing Liu
    The document discusses the ongoing foreclosure crisis in the US resulting from the 2008 financial crisis. It describes actions by banks and the government to address high foreclosure rates, including voluntary foreclosure freezes by banks and Obama vetoing a bill that would streamline the foreclosure process. While a temporary foreclosure halt may help stabilize housing prices, the root causes of unemployment and underwater mortgages continue to exacerbate the foreclosure situation.

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    Current Issue 610 Revised

    Uploaded by

    Xing Liu
    16 views3 pages
    The document discusses the ongoing foreclosure crisis in the US resulting from the 2008 financial crisis. It describes actions by banks and the government to address high foreclosure rates, including voluntary foreclosure freezes by banks and Obama vetoing a bill that would streamline the foreclosure process. While a temporary foreclosure halt may help stabilize housing prices, the root causes of unemployment and underwater mortgages continue to exacerbate the foreclosure situation.

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    The document discusses the ongoing foreclosure crisis in the US resulting from the 2008 financial crisis. It describes actions by banks and the government to address high foreclosure rates, including voluntary foreclosure freezes by banks and Obama vetoing a bill that would streamline the foreclosure process. While a temporary foreclosure halt may help stabilize housing prices, the root causes of unemployment and underwater mortgages continue to exacerbate the foreclosure situation.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    16 views3 pages

    Current Issue 610 Revised

    Uploaded by

    Xing Liu
    The document discusses the ongoing foreclosure crisis in the US resulting from the 2008 financial crisis. It describes actions by banks and the government to address high foreclosure rates, including voluntary foreclosure freezes by banks and Obama vetoing a bill that would streamline the foreclosure process. While a temporary foreclosure halt may help stabilize housing prices, the root causes of unemployment and underwater mortgages continue to exacerbate the foreclosure situation.

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    BUSI 610 Financial Accounting

    Current Issue

    Ian Nabb
    Xing Liu
    The Foreclosure Crisis

    Foreclosures are one of the biggest results of the financial crisis of 2008 and the
    financial burden has had a large impact on the average American’s wealth. Increased
    rates of foreclosures have left many American’s homeless and led many to use all
    their savings to continue mortgage payments and some to lose all their equity in their
    largest investment. Unemployment, pay cuts, and mortgages that are underwater have
    only exacerbated the issue and are the main culprits for the continued high foreclosure
    rates. Recent actions by banks and the government have been taken to try and reduce
    foreclosures, not only to prevent more homeowners from being displaced, but also to
    help banks reap profits from their investments in mortgages.
    Banks have voluntarily begun to put a freeze on their foreclosure process in an
    attempt to decrease the foreclosure rate. Three main factors have led the banks to
    make this decision. First the banks are under political pressure from the government,
    secondly the banks could use a public relations boost after taking bailouts, and finally
    the banks would like to see if some of the mortgages approaching foreclosure can be
    saved. J.P. Morgan, GMAC, and recently Bank of America are all major lenders who
    have taken action to put a halt on foreclosures. The concern that arises from the halt is
    that most foreclosures economically should go through. Many cannot afford their
    mortgage due to overextending themselves financially or because of deceptive lending
    tactics, while some owe more on their mortgages than their house is worth. However a
    temporary freeze will prevent homeowners from being homeless temporarily, and a
    percentage of people do just need some extra time and will be able to afford their
    mortgages.
    On October 7th, president Obama vetoed a bill on foreclosure documents, which
    could have made it easier for courts to clear foreclosures to people who are not able to
    pay their mortgages. Until October 11, with four other major companies that service
    mortgages declared suspensions of their foreclosures process, this event has just
    become another crisis faced by the American recovering economy
    The rejection of this bill is based on fears that it could worsen the mounting
    problems caused by flawed or misleading documents used by banks in home
    foreclosures. Economists worried that it will delay a housing rebound; the longer the
    process for a foreclosure takes the slower it will take bring prosperity to the housing
    market. One comparison widely cited is in California, where judges don't handle
    foreclosures. The housing market appears to have hit bottom a year ago and has been
    rebounding since. In Florida, where foreclosures go through the court system, prices
    keep falling, and foreclosure inventory continues to rise.
    The government faces a tough decision on how much it should choose to interact.
    From a purely economic view the government should likely not interfere and let the
    market correct itself. This would lead to large numbers of foreclosures on properties
    that investors or new home buyers can purchase as greatly distressed prices, improve,
    and either rent out or live in. This would likely lower the foreclosure inventory fastest,
    help banks free up capital, and provide great returns for people that can invest in these
    distressed properties. The government is influenced to intervene because of the great
    pain this economic growth would cause. Thousands of people would be displaced
    from their homes, and would likely be homeless for a time period. These people
    would likely have their equity in their homes wiped out, and would be unlikely to
    purchase a house again. Many Americans count their home as their largest (and
    sometimes only) investment, and without it many Americans would go without much
    savings or investment into retirement. It also widens the wealth gap in America.
    Wealthier investors would get wealthier from these distressed housing prices and the
    increase in demand for rental properties, while foreclosed homeowners won’t have the
    wealth in their houses and can end up paying the wealthy investors for the rest of their
    lives for rental housing.
    There is no clear answer to solve this foreclosure crisis. The temporary halt on
    foreclosures appears to be a good idea both economically and politically. By halting
    foreclosures and making the process take longer hurts banks profits by keeping these
    mortgages on their balance sheets longer, but it prevents the housing market from
    being flooded with distressed priced homes. This helps stabilize housing prices for
    everyone, including people who can afford their mortgage. The freeze is also good for
    the banks image since many people feel the banks are indebted to them after taxpayers
    bailed them out and allowed them to continue to make profits. However, this situation
    has reflected the serious conflicts underlying in the current US economy with the
    great unemployment rate and it has become a sign of the trapped US economic
    growth. It starts with people losing their jobs, lacking money to pay for their
    mortgages loans, them waiting for government subsidies to help, and finally expecting
    the government to protect them from being kicked off their homes, or become
    homeless. However, without those defaulted mortgages being allowed to trade in the
    capital market, the recovery of economy is also hindered. Thus currently the first
    priority for the US economy is still to provide enough job opportunities to ensure a
    steady growth. So far in the recovery, companies have managed to boost profits and
    deal with higher demand without hiring more people, due to immense gains in
    productivity and efficiency. That's why employment gains have been limited. At least
    one of the good things this scandal reveals is that there are indeed potential job
    opportunities lying in the banking and housing sectors such as “robo-signers”, people
    who are signing up to 10,000 documents a month to expedite the foreclosure process.

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