Featured, Real Estate

Future of Mortgage Foreclosure

Written by Ryan Wike on September 23, 2008 10:37 am EST

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According to a CNN Money report, filings for foreclosed homes jumped to eleven percent of all bankruptcy filings in the first three months of 2008. With the presidential race now in its final stretch, voters are starting to credit more and more about what the candidates contingency plans are for fixing the flagging national economy, especially aiding those families who have already been foreclosed upon or are on the brink of foreclosure.

The democratic candidate Barack Obama has released plans for aiding the families affected by foreclosure. His policy would include a $10 billion foreclosure prevention slush fund that would, “help at-risk homeowners in cities hardest hit by foreclosures. This would be paid for through penalties under the Stop Fraud Act and/or bonds” issued by the federal government. The Stop Fraud act, an Obama endorsed piece of legislation, is aimed at preventing mortgage fraud, arguably a sizable part of large lenders not having enough money to go around to create new home loans. Obama also wants to give a ten percent mortgage tax credit for people who do not itemize their income tax deductions. According to Senator Obama’s campaign, up to 10 million Americans could benefit in amounts up to $500 each year. An Obama presidency would also endorse creating a Credit Card Bill of Rights and a rating system for loans and credit cards, which would make loan terms easier to understand and transparent, making sure that debtors are well aware of what they’re signing on to, hopefully preventing new mortgage customers from becoming insolvent on their home loans and preventing their houses from being foreclosed upon. However, Obama’s plan does little to address the predatory lending practices from sub-prime mortgage lenders that precipitated the credit crunch and the foreclosure crisis in the first place. His ideas are good for helping those already affected, but for the Obama plan to be successful, he needs to address the underlying cause of the large amount of foreclosures, sub-prime loans.

Comparably, the republican candidate John McCain wants to take a completely hands-off approach when it comes to dealing with the foreclosure and credit crisis facing America. His presidency would allow the market to correct itself without further government bailouts similar to what the government did for General Motors in the 1970s. The McCain administration views the big mortgage loaners as too big to fail and believes that the free market, where the strongest companies are the ones that should survive, will take control. McCain suggested that he would give some aid to the people hardest hit by the foreclosure and credit crises, but neglected to go into any further detail about what specific aid would be given to families already foreclosed upon or on the brink of foreclosure. Contradictory to his free market approach, McCain supported the bailout of Bear Stearns because he believed that more financial problems would spring up if the government took no action. However, he does not support giving most affected homeowners any form of relief, saying that they have only themselves to blame.

McCain’s approach is definitely in line with conventional republican economic theory, believing that the market can sort itself out. Obama also believes that the market has the potential to repair itself given enough time. However, the plain fact is that we have a foreclosure crisis because the government let the market have too much control over loans and foreclosures. Whoever is the next president has a very large problem in the foreclosure crisis to fix. If the situation is not remedied in a quick and effective fashion, I fear that we may be seeing a for sale sign on the lawn on the White House.

Sources:

* CNN Money

* Barack Obama on Mortgage Foreclosure

* John McCain on Mortgage Foreclosure

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