In my unexpected return to desperately seeking scholarship money again (which may or may not happen in time for Spring) I found one that deals with the foreclosure issue.
Foreclosure.com is breaking new ground by offering a scholarship program. All college students and incoming freshman are invited to apply by submitting an article. This year's topic is "How to solve the foreclosure crisis."
Essay Topic: "How to solve the foreclosure crisis"
Deadline: Dec. 31, 2009
Requirements: Minimum 1,000 words,
Maximum 2,500
Awards: Five winners will be selected
Top prize $5,000
Second through fifth place
will receive $1,000 each
So, in thinking about this I had a number of thoughts all at once, because I can see both sides of the problem, which some people struggle to identify. The first cause of the problem, ironically enough, came from government (Bush/Clinton era) and the philosophy that every American SHOULD and CAN own a home. The government, in typical overarching, all-encompassing view wanted to see everyone achieve "the American Dream", not taking into consideration that there are a great many people who cannot and should not own a home.
The second part of the problem came from, in my opinion, greedy businesses. In an effort to increase their bottom lines, they saw opportunity in the government initiatives to increase home ownership and thus created more and more exotic and risky loan packages and peddled them mercilessly to everyone without properly screening candidates or requiring traditional documentation and other elements that make mortgages work.
The irony to me is that we're dealing with debt instruments which are long term. Doing that in a short term method (such as 1 -2 years) is similar to unsecured debt that we have today in the modern credit card and unsecured short term personal loans. It is a complete ridiculous fallacy to do so with a 30 year mortgage and a depreciable asset. However, no one was thinking of depreciation. Brokers figured since homes had historically increased in value that would serve as an adequate hedge against risk as would the idea that people would be committed to keeping "the American Dream".
The third problem comes from consumers which purchased these exotic mortgages and jumped into these situations without proper reflection. Sold on the idea of "the American Dream" as well as the ongoing need for instant gratification inherent within our culture (something I fight against daily in my personal life), consumers took the plunge. Unfortunately, many found themselves in a heck of a pickle due to an uneducated perspective about homeownership, especially the costs involved. Ill prepared for emergencies and job loss, uneducated about the actual debt instruments they'd purchased, as well as racking up additional debts in other ways, homeowners became besieged on all sides and the majority, as a result, could see no other alternative than to walk away, leaving the system in a two year continuing crisis of vacant homes and no buyers.
To remedy this problem it created in the first place, the government stepped in and offered buyers credits to purchase homes which could serve as a down payment or be used to remodel (since a number of foreclosures were vandalized or neglected by vacating owners or criminals). While the problem has been a slight success, it has not solved the problem and only time will tell whether it has only continued to exacerbate the existing one (how well were those candidates screened? To hear the desperate radio advertisements in my city alone I wouldn't imagine anyone in the industry learned their lesson yet).
Of course, it's easy to point the blame. But the more important question becomes how to solve the problem and there's no easy answer. With job losses at its highest rate in more than two decades (a national 10% average last I heard), business closings, and less money available for lenders to give, lenders must be choosier regarding their risk at a time when they need desperately to be looser to survive. With 10% of the job force unemployed or recently unemployed that further reduces the pool of candidates. 10% of the population is too impoverished to stand a chance at home ownership. The remainder of the population that CAN afford a home, typically already have one. A small percentage of those might be interested in upgrading or changing homes but not in enough numbers to support any initiative the government might propose (as evidenced by the recent government tax credit) and even if they do, that doesn't solve the problem but instead unbalances it further as many homeowners would leave older homes behind rather than newer ones.
Ultimately, the solution seems to be a return to prior values, something the government would certainly resist doing as that would be akin to admitting they had done something wrong in the first place and ultimately shake confidence in government itself. Not that it hasn't been already but the government, for the last two years, has struggled mightily to wipe the mud off its face and has gone to great lengths to do so.
Some states have enacted their own regulations, as evidenced recently by New York and the government is working to somehow provide greater regulation in an industry that is supposedly rigidly regulated already.
"Although consumers are often unable to distinguish one origination source
from another, mortgage brokers stand singularly accused of operating on an
unregulated basis. This accusation is plainly false. Mortgage brokers are
regulated by more than ten federal laws, five federal enforcement agencies and
at least forty-nine state regulation and licensing statutes. Moreover,
mortgage brokers, who typically operate as small business owners, must also
comply with a number of laws and regulations governing the conduct of
commercial activity within the states."
Obviously not or we wouldn't be in this situation in the first place. The article further proposes that further regulation will not solve the problem of abuses within the industry but it's obvious there are too many loopholes within the system that allow those abuses to occur. In some states, such as Maryland, no license is required to even originate loans if you work for a brokerage house. In my industry, that's practically unheard of in everything except the mortgages we're authorized to sell (which I don't, our loans are not very competitive in the currently lazily regulated industry). Countrywide, a subprime lender of mortgages, is currently being sued by the government for questionable mortgage practices. In being bailed out last year they created an $8.4 billion loan aid program presumably to help troubled borrowers deal with their bad mortgages and it was still taken over by Bank Of America. And in spite of all that, the prior executives of Countrywide and other businessmen have and are profiting enormously as a result of all of it.
A lot of these former executives are now starting their own businesses and profiting hugely from a crisis that has cost the country billions. How is it that these people can even still operate in the mortgage industry at all let alone own a business? They should be brought up on criminal misconduct charges, slapped with fines that leave them impoverished and prohibited entirely from doing business. Let them go work at McDonalds and understand what it means to work your entire life for a dream and then lose it because some assholes were too greedy to see they were ruining people's lives while presenting it as an opportunity.
It's funny to me because I see the mortgage brokers as manipulators now when I have zero experience buying a home. Don't get me wrong, I've done a great deal of research about home ownership and it's because of that, I knew for the last five years that it is unrealistic for me to try to own a home, even when the government offered their $8K credit. I simply can't afford it. No way, no how. Even if I were working a job in my field I couldn't afford it. But many people just accepted that lenders said they could afford the payments. I recently experienced that when I tried to purchase a car and was pressured into buying significantly more than I wanted to. When the opportunity came for me to return the car I did so, as much as it pained me to, because it was in my best financial interest and I saw that. Not many homeowners have that chance.
Ultimately a solution will be difficult to accomplish because it requires an overall industry change as well as governmental and even at a consumer level. The time of entitlement policy needs to end and it doesn't seem to be - if anything it's getting worse (hence the bailouts and credits). No one wants to pay for the consequences of their actions or take responsibility for the outcomes. Until that changes, reforms will do little if anything.
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