Three Ways to Fix Subprime Crisis
With the subprime industry suffering from a serious meltdown, experts including consumer advocates and presidential candidates offer some suggestions on how to fix this continuing crisis that resulted to millions of foreclosure homes for sale.
Bankruptcy Code
According to Senators Christopher Dodd (Connecticut) and Richard Durbin (Illinois), the damages caused by the present mortgage and credit crisis can be minimized, if not fixed, by letting judges reduce or shrink home loan debts. At present, judges already enjoy the authority to do so for debts including loans involving investment properties and credit card dues. Many consumer advocates believe that this suggestion will be welcomed by millions of people who are scraping by because of their large debts. But this option might mean an increase in mortgage rates in order to compensate the higher risk for losses.
Fixed-Price Housing
Another noteworthy option is for the government to purchase troubled mortgages and sell them to the same borrowers for a smaller amount. Of course, this will mean a drop in the property’s market value and the home price will also be fixed forever. This option might result to over 2 million homes at affordable prices, which is good news for home buyers. On the other hand, other owners will suffer from not enjoying much profit from their homes since these affordable houses might have an impact on home appreciation values. Worse, home values might even drop in the immediate neighborhood of these once-troubled properties.
Foreclosure Bailout
The most likely solution that will be implemented is for the government to consider foreclosure bailout. Struggling mortgage lenders will now have enough cash to lend, probably resulting to lower mortgage results and more mortgage applications. When this happens, home prices will stop dropping and the housing market will recover. Unfortunately, this option comes at a high price, about $200B. Taxpayers will most likely foot the huge cost of a foreclosure bailout.
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April 18th, 2008 at 2:00 pm
Yes, the three ways of the fix sub prime are very good, this option might result to over 2 million homes at affordable prices, which is good news for Home Buyers