A recent article in the San Francisco Chronicle offered an interesting opinion by Brent T. White, a law professor at the University of Arizona. He advises homeowners to allow their home’s to go into foreclosure when they find that their home is worth less than what they owe on their home loan. His argument is that foreclosure is a smarter economic decision and that it is only the social stigma of losing one’s home that is keeping homeowner’s paying their bills when it would be in their best interest to cut their losses and run.
I agree with White that there are times when it is in a homeowner’s best interest to simply walk away from their loan. However, I also feel that he grossly misrepresents the repercussions of a foreclosure. White’s suggestion completely downplays that, in most cases, creditors can still legally pursue you. He also suggests that one’s credit score after going into foreclosure is likely to recover in two years. The truth, however, is that you will have bad credit for the next 5 to 7 years, which means limited access to credit and increased costs on anything that relies on your credit history (e.g. renting an apartment). Finally, White’s suggestions ignores the human cost of this stressful process. Going through foreclosure creates a great deal of anxiety. It is not something you can simply do without feeling the effect on your own well being.
Our government suffers from a naivete with some of its plans to resuscitate the economy which consumers simply cannot afford. To be more specific, the current administration needs to come to terms with the fact that business practices are dictated by laws and potential for profit. Businesses cannot, and should not, be counted on to change their policies out of the goodness of their hearts.
Citibank is suspending foreclosures and evictions for the holiday season. For 30 days, from December 18th through January 17th, Citibank is offering a reprieve to borrowers whose loans are owned by Citibank Corporation. The company reports that it will help about 4,000 borrowers who are either scheduled to be evicted, or scheduled to receive notice of eviction during this period.
In order “to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally,” (according to their
The Federal Housing Administration will be the next financial disaster to fall on the shoulders of American taxpayers. Created in 1934 to help low income and first time buyers get housing loans, the agency was designed to guarantee a relatively small percentage of mortgages, for instance, two percent in 2005. Since its inception, FHA’s budget and operational infrastructure have followed this low-ratio model, and have been designed to absorb losses without having to ask for money or help from the Federal Government. However, the GAO is now projecting taxpayer funded subsidies for the FHA of half a billion dollars over the next three years, if no changes are made to the agency’s program.
Our country’s economy has been operating from bubble to bubble. From 1996 until 2000, we were in a tech bubble. Our faith in the financial potential of the dot com industry was boundless, though it ultimately proved ill placed. From 2000 until 2006, we were in a housing bubble which, when it burst, laid the foundations for the current recession. During these periods, the country placed its economic hopes on new, seemingly plentiful, frontiers that promised new means by which to make money. Older values were made to seem, by comparison, out of touch and out of date. As a result, we, as a nation, allowed ourselves to slip further and further away from the fundamentals necessary for a healthy economy.
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On April 30th, the Senate defeated the “cram down” bill that would have allowed bankruptcy judges to adjust mortgages so as to allow those people going through bankruptcy to keep their homes. The defeat came as some democrats sided with the bill’s opposition, mirroring a general weariness from within the banking community towards this piece of legislation.
The barbarians, so the saying goes, are no longer at the gates. They’ve stormed through. In many cases, they were practically let in by negligence of the regulators whose job it was to protect us from greedy swindlers, inventive accountants, and fraudulent lenders. The gatekeepers themselves, the various federal regulators, have not been punished for failing in their duty to protect America. They remain, even now, at their posts as the country reels from the damage it has taken from the various scandals and crimes committed against its economy and its taxpayers. Those whose job it was to police against these crimes have failed us and we wonder why they have not been made accountable.
Fannie Mae and Freddie Mac are planning on paying out $210 million dollars in bonuses despite the fact that both these companies had to be seized by federal regulators so as to prevent dire repercussions across the economy. Their failure has been one of the central low points to the economic devastation of this past year
Money shows should not treat finance as entertainment by turning the buying of stocks into a joke or by turning a discussion of serious economic situations into an occasion for groundless argument. These shows discuss issues directly involved in the managing of people’s money, pensions, savings, and 401ks. The networks that produce these shows, then, have a moral responsibility to treat the subject matter with the seriousness that it requires.