Trying to start an avalanche?

For some reason, many banks seem uninterested in trying to prevent foreclosures, repeatedly losing homeowners paperwork, ignoring attempts at communication, and generally acting like foreclosing on a property is in their best interests.  That may have been so in the past, but we are on the brink of a tidal wave in foreclosures, which will put so many houses on the market that banks will undoubtedly lose large sums of money.

Perhaps it is easier to just use the accounting tools to write off the investments than to work with a homeowner, but how many investments will have to be written off?  If a glut of foreclosed homes brings the market value of all homes down, who is going to gain?  Expecting someone to pay several times what their home is worth when they are out of work, or struggling with underemployment is not rational.  Yes, it is the right thing for those homeowners to do, but who wouldn’t think “I can be putting my money into something that is worthwhile, instead of merely adding to the wealth of some bank.”  If we believe that we are unlikely to ever pay off a home, and that home has depreciated substantially since we bought it, what is the motivation to go on struggling to make mortgage payments?

Money has been made available by the federal government to offset the loses that would result in resetting mortgages, yet banks are dragging their feet in taking advantage of it.  They seem to think that they must stick to the original agreement or else they will seem like pushovers, or something.  We are not through this financial crisis yet, and perhaps the worst is yet to come.  Having the value of the nations inventory of homes fall considerably would wipe out tremendous amounts of wealth, irregardless of whether a homeowner has paid off their mortgage or not.

Expecting consumers to return to consuming when they are terrified of losing their homes is completely unrealistic.  If we do not create an atmosphere of understanding and flexibility, we are likely to experience changes completely beyond our control.  Dealing with change means looking ahead, recognizing what is coming, and planning for it, not denying that change is ever going to happen.  We may not be able to prevent change, but we have the option of guiding it somewhat, of minimizing its impact.  The alternative is chaos, as we try to cope with things without any preparation.

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