Foreclosures Are the Symptom

The plans put forth by the politicians may even cause additional problems since they don’t address the real issue regarding homes: home prices.

Never in history has there been such a gap between family income and housing prices. Usually when one gains, so does the other.

Home prices climbed at an unprecedented pace and within a few years, the gap between home prices and incomes was so large that it became an issue for most homebuyers.

This should have been enough for the federal government, but lenders and borrowers found a way to dodge the issue via mortgage fraud.

Applications became falsified, appraisals were inflated and lenders wrote reckless loans to unqualified borrowers. Based on the assumption that bad loans could be refinanced or a home could be sold, everyone took the financial gamble on the housing market.

During the past year, it hasn’t looked that way. Home prices continue to fall, leaving banks and borrowers alike scrambling to discover a way to get out of a financial sinkhole. Foreclosures are now at levels not seen since the Great Depression and are expected to get much worse in the near future.

Foreclosures aren’t the problem though, home prices are. Simply put, people cannot afford today’s home prices and the majority of people who are currently in default have not even seen a rate increase yet, rates are going down! It’s not that their bad loan is working against them, it’s the fact that more home was bought than afforded and they bought during the time when home prices were artificially high.

Freezing rates and other ploys to treat the symptom of the problem, is not going to current the issue. It appears the government is laboring to keep people in a depreciating asset that was a bad investment from the beginning.

Don’t Buy It

The government would like you to think the bailout is meant for the working family, when really it is for the banks not the public.

Bush’s freeze rate is actual a goal to prevent REAL owners of most subprime loans (foreign investors of mortgage backed securities) from suing U.S. banks.

If the banks had to buy back the ‘worthless’ paper, which would cost 10 times more than the market value of securities, the world would realize how unfavorably leveraged U.S. banks really are. This would be bad for U.S. banks — some would go out of business.

The bottom-line is that we have to face the facts and confront the fall of home prices. Some people will be losing their homes and banks are going to hurt when real numbers finally hit the books.