The Bailout Plans for Tackling the Root Cause of the Foreclosures Crisis

September 25th, 2008 | Tags: Foreclosure Crisis

The big question being asked is that will the Paulson, Bernanke bailout plan tackle the root cause of the foreclosure crisis? If so it should be able to stabilize the real estate market. Otherwise it is just a simple bailout of the lenders and nothing more than that, opines the Center of Responsible Lending. Ironically it is these lenders who perpetrated the foreclosure related housing crisis raging across America today. It seems the bailout will do nothing but lead to further foreclosures and woes for the common man.

An integrated comprehensive package of plans cannot exclude the vital sector of the economy – the common hardworking taxpayer. It is the latter who are already paying the price for the Wall Street capers. If the new plan does not include the American in the street then it will just be like any other frothy plan. The only difference is that more of the taxpayer’s money is being gambled with. Multibillion-dollar subsidies are being offered to private financial institutions. But the families who have suffered and are suffering and will suffer from foreclosures are completely sidetracked. According to present trends another 46 million families will be struck down by foreclosures in the near future.

It is naïve to believe that foreclosures will be contained if the government purchases troubled debts. The mortgages have been converted into dubitable securities that have been sliced and sold to investors around the globe.

For a plan that will be viable the ban on judicial modifications has to be waived. The voluntary workouts on the part of the lenders are not being put in practice as is evident from the intensity of the foreclosure crisis. The house owners are barred from seeking bankruptcy relief even if the mortgaged house is their one and only shelter. The bankruptcy courts allow for review of court-ordered modifications and see to what other barriers are there for voluntary workouts. It is the judicial modifications that can stop the landslide. Without the taxpayer’s dollars being distributed around this will be effective in containing foreclosures.

A ceiling of 36% has to be put on consumer loans. This will stop abusive pushing up of interest rates to as much as 400%. It will protect responsible lenders from unfair competition and save hundreds of middle class American families from disaster. At present the government becomes the new bogey to the borrowers instead of the previous lenders.