Issues: Housing

I have decided to research all the issues that CNN claims to be the most important during this election season in a random order. I did this to educate myself and I am writing about it in hopes to also educate you if you care. I believe every issue is important whether it impacts me directly or not. I am not America I am a part of America and my vote will effect not just me, but everyone who chooses to live in this country. It will also effect how the rest of the world looks at us and America needs the rest of the world just as much as the world needs America. Vote for who you want, but DO NOT be selfish with your vote.

Issuses: Housing 

All right, this one was a little hard to throw my tiny brain around. I have never owned a home or even thought about it so I really have no idea how the housing industry works or in this case how it failed. I think I have a grasp of it, but it took about 15 different web sites and a flashy BBC interactive animation.

So basically regular folks with good standing credit go to the bank ask for a loan and get money to buy a house. The homeowner gets a loan with a fixed rate of interest so that our economies constantly changing interest rate wont drastically change what they owe the bank each month. However because of these fixed rates their is a possibility the bank's will lose money on the loan depending on where interest rates fall. Because of that, bank's look to insure themselves by selling bonds to investors. These bond's insure the bank against any lost interest or in the case the homeowner is unable to make payments.

The Federal National Mortgage Association (Fannie Mae) and the Federal Loan Mortgage Corporation (Freddie Mac) are both government sponsored, stock-holder owned corporations that deal with the buying and selling of mortgages and their bonds. These two companies provide insurance to investors who buy bonds from banks. If a homeowner defaults on a loan (which has been sold to an investor via bonds) Fannie Mae and/or Freddie Mac will swoop in an buy the bonds from the investor. This insures that their is no risk for the investor. The two companies own about half of the thirteen trillion dollar mortgages in this country. They make their money by charging a fee for this "insurance". This system helps to make sure their is a supply of money for mortgages and home purchases so the housing market never stops.

So what caused the problem? The main instigator appears to be the sub prime mortgage crisis. Sub prime mortgages are given to people who do not normally meet the requirements of a regular mortgage loan. People with low income and bad credit for instance. There was a surge of these mortgages all over the country, but the main problem came from deceptive loan practices. These sub prime loans looked good to homeowners because of a very loan interest rate. Most of them however were not fully informed that these were what are called adjustable rate mortgages. Meaning the loan starts with a a very low "introductory" interest, but will reset to normal or higher mortgage rates after two years. Once these rates jacked up many homeowners were not able to keep up with the loans and fell behind and were foreclosed on.

Because these sub prime loans became a huge sell, demand for houses went up drastically and with all supply and demand situations the price of houses skyrocketed. It was a seller's market and people were buying left and right. On top of that people who already had normal mortgages took advantage of the increased price of their house by re-financing them at a higher rate and taking out a second mortgage. This second mortgage was extra cash for these folks and they used the money for just about anything.

Then the federal interest rate increased and sub primer's 2 year introductory rate ended. Like dominoes everything began to go wrong. Homeowners (both sub prime and normal due to re-financing) could not keep up with their bills. Loans stopped being paid and houses began to get foreclosed on in record numbers. Banks who had loans that were not insured by bonds began to lose money and some went out of business. The loans that did have bonds began to pinch Freddie Mac and Fannie Mae. The two businesses were starting to not be able to keep up. They were quickly running out of money and many people speculated they would go bankrupt.

If those two companies went bankrupt they would not be able to insure the investors who bought all those mortgage bonds. The American economy would go spirally out of control. If you thought the economy was slowly headed in the wrong direction before then this would put us at about 80MPH towards the wrong direction. Just a few days ago the federal government stepped in to save Freddie Mac and Fannie Mae. They took control of the two companies and the $5 trillion home loans they insured. The Federal Housing Financing Agency will run these two companies until they are both on better footing.

Barack - He proposes a $10 billion fund to help prevent foreclosures and would eliminate taxes and fees for families who must sell their homes. People who are in danger of being foreclosed would re-finance loans that would be insured by the Federal Housing Administration. In addition he would boost funding for law enforcement programs aimed at housing fraud by $40 million and establish new criminal penalties for professionals found guilty of fraud. He would require lenders to report suspicious or fraudulent activity and would establish a database of disbarred mortgage professionals.

McCain - Give homeowners a chance to have their loan modified provided they meet certain criteria. He believes a government bailout should be a last resort. He would create a justice department task force that punishes individual's or firms that defraud innocent home owners or forged loan applications. He would also assist state attorneys investigating abusive lending practices and improve transparency in the lending process so potential home owners know what they are getting into.

My Take - On the justice side of things I think they are both very close with their plans. I actually have to stop and wonder why it took the government this long to punish dealings like this and to find a way to prevent situations like this. Having said that it is Barack's plan that I have to give a point to. I don't believe the government should have a hand in everything, but one of those things they should be there for is crime & punishment. The government should not have been blind sided by fraud on this level. I understand McCain's point that a bail out should be a last resort. The governemtn should not be there to baby us everytime we make a mistake just as we should not baby our governemnt when they make mistakes. However in this case I believe there is blame to go all around. Nobody did their jobs in this matter and I believe from what I have read and seen that this is the time for last resorts. There should already have been safeguards in effect and the plans of both candidates sound like something that should have already been common sense. Its Barack's plan that does the most to make up for this mistake. It does the most to make up for these mistakes. Its does the most to insure the economy can get back on its feet quickly.

Obama - 2

McCain - 0