Does it feel like you just woke up one morning, looked around, and asked yourself “how did we get into a situation where we would need a housing rescue bill? The problem is long and multi-faceted. As with most problems in the financial realm it begins with the quality of the underwriting of the loans. When underwriting standards are relaxed it often results in too much credit being extended and that allows buyers to purchase beyond their means. The inexpensive (at least initially) and easily available credit heightened the demand for homes. As the demand increased, prices for homes increased, and the spiral continued with upward trends in housing prices. As investors jumped into the market to take advantage of the rising prices they were looking for payment options that would compliment their “flip” mentality - they were not particularly interested in the long term affects of mortgage financing structures. The demand for the lowest possible monthly payment was the result of short term thinking that was an early contributing factor to the need for the American housing rescue.

The low monthly payment provided by ARM,s negative amortizations and other structures allowed borrowers to purchase homes that they would otherwise be able to afford. A slowdown in the real estate market made it impossible for many to sell their homes and as a result many are in pre foreclosure.

This foreclosure problem has existed for many years however, the current situation is unique due to the number of borrowers that are relying on mortgage loan modifications. The number of properties in this situation has catastrophic implications on the financial markets. Many people caught in this situation are not quick flip investors or homeowners stretching beyond their means. Many are just ordinary people that were looking for a better opportunity for their family and now they face foreclosure and need to stop foreclosure.

The solution to the problem is not to let the loans all go bad - the financial institutions could not survive the blow. Many borrowers are relying on mortgage loan modifications and government help to avoid foreclosure. So, where do we go from here?

Most would agree that keeping people in their homes is better for the economy than homes foreclosed by banks that are vacant. This would result in even further decline in housing values and have a profound impact on the economy. The Obama stimulus package has earmarked funds dedicated to this segment of the economy. More to come on ways to save your home from foreclosure. continued…