The single most effective way of taking control of the housing market and stemming its precipitous slide is to prop up homeowners and prevent them from going into foreclosure.
The logic is simple: Each house that goes into foreclosure has a ripple effect, its diminished value echoing into the surrounding neighborhood, driving down other home prices and creating momentum for a foreclosure epidemic. As property values fall, there is the growing likelihood that many houses will be worth less than the mortgage paper their owners are carrying, which in turn might encourage some to walk away and leave their properties for the bank to deal with.
There are neighborhoods around the nation that have been destroyed by this dynamic and it is imperative that we find a way to stop this in its tracks.
President Barack Obama today unveiled a plan that he says will do that — offering assistance to up to 9 million homeowners in an effort he says “would shore up distressed housing prices, stabilize neighborhoods and slow a downward spiral that he said was ‘unraveling homeownership, the middle class, and the American Dream itself.’”
The plan has three basic components. One would help homeowners who continue to make loan payments on time, but are paying high interest rates and would otherwise not be able to refinance because they do not have enough equity or their houses are worth less than they borrowed. A second would assist people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners. The third would try to assure there is plenty of credit available for mortgages by giving $200 billion of additional financial backing to Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies.
Acorn’s Bertha Lewis, writing on OpenLeft, praised the president, saying his anti-foreclosure plan likely would have a greater impact on the economy than even the stimulus plan would have. The $75 billion plan “is a welcome initiative,” she writes, “especially in the wake of the 2 years of inactivity and neglect from the Bush Administration.”
I would argue that in terms of addressing the specific genesis of our present crisis – the toxic assets crippling the financial sector – the announcement today is of greater magnitude. For without a plan to address the predicted 8-9 million foreclosures over the next 4 years, that’s in addition to the 2.3 million that occurred in 2008 with a total estimated cost to the economy of over $850 billion, attempts to spur an economic recovery will fail. There can be no long-term solution without addressing the immediate foreclosure crisis.
That’s the key thing to understand. We have to help homeowners if we are to have any shot at stabilizing the housing market and easing the credit crunch. If housing values continue to fall, this can only continue to get worse.
Hank Kalet 
Unfortunately, the \”crisis\”, (which I\’m not so sure it is), is rooted in government stupidity. This will spend a lot of money, but not as much as the so called \”stimulus\” bill, in a futile effort to suspend economic reality. These loans should have never been made and only the supposed government regulation that people thought would protect them. It\’s tough to think that 75 billion will \”buoy up\” 9 million in trouble?Investigate the frauds. Let the market find it\’s own level. Reduce the \”regulations\” that people assume will protect them; they don\’t. \”Moral Hazard\” is when we rush to bail out bad decisions; people will then make more \”bad decisions\”.
We need stronger regulations in the US. There has been not one bank failure in Canada because they have strong regulations and did not go on a deregulation binge as we did in the US.It seems good old Canada did not follow the US in all the deregulation nonsense. They still have the equivalent of Glass-Steagall intact up there. No laissez-faire, unfettered capitalism for them. While those countries who followed the American neocon model are wallowing in debt and writhing in financial pain and uncertainty, Canada is poised to profit, thrive and take advantage of opportunities that the envious unfettered capitalists are in no position to while they sit on the sidelines trying to figure out a way to get themselves out of the present mess.According to Fareed Zakaria:Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn\’t grown in size; the others have all shrunk.So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1 — compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada\’s more risk-averse business culture, but it is also a product of old-fashioned rules on banking. In addition Canadians cannot deduct mortgage interest, and unlike in America, cannot just walk away from a mortgage so a default is your problem not the bank\’s. Despite all this there is a higher rate of home ownership in Canada than in the US.Other virtues of the Canadian system according to Zakaria:Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing. Its health-care system is cheaper than America\’s by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; \”healthy life expectancy\” is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America\’s largest car-producing region.