Are the Government's Programs Helping Foreclosure Victims or the Banks?

As the foreclosure crisis has only grown worsethem cover their poor lending practices. Of
by the month, and large banks are in danger ofcourse, this is a reflection of the fact that the
collapsing, the focus of government appears to bebanks are infinitely more influential in Washington
focused on helping homeowners save their homesthan the average person, especially an average
from foreclosure. The government has stepped inperson too busy trying to stop foreclosure to
with a number of different policies and programsworry about what is going on in politics.
that are designed to help people suffering fromHOPE NOW and Project Lifeline are two voluntary
the foreclosure crisis. With most of whatprograms the government has put together and
government does, though, the people who arepresented as a saving grace for homeowners
designed to benefit are actually being hurt, whilefacing the loss of a home. Essentially, the
the parties who are most responsible for theprograms are nothing more than media relations
financial crisis are socializing their losses.programs where a handful of major banks in the
The real estate bubble was inflated beyond allcountry are voluntarily offering homeowners
reasonable expectations of value at an increasingvarious programs to save their homes. This might
rate once the Federal Reserve lowered interestbe through repayment plans or loan modifications,
rates in an effort to avoid a recession after theor freezing the interest rate for a set period of
crash of the dot-coms and the 9/11 terroristtime. But these have always been offered to
attacks. Rates were lowered to below onehomeowners who can qualify for them -- putting
percent, and people were encouraged to cash outa fancy new name on them does not change
home equity or buy a new home. Even peoplewhat the programs actually do.
with poor credit were able to get mortgages forThus far, these have been the only responses
relatively low rates, and they took advantage.from the government in regards to the
Banks looked the other way during this boom, asforeclosure crisis. Although it would probably be
many of the people setting lending guidelines werebetter that they stay out of the situation entirely,
just as taken in by the low rates and rising valuesthe Federal Reserve continuing to inflate the
as everyone else. Hedge funds on Wall Streetmoney supply and manipulate interest rates will
were only too willing to purchase bundles of thesehave unintended consequences for homeowners
loans and were confident they would makewhile benefiting the largest, most
money even on foreclosures. Home values werepolitically-connected banks. Monetary bailouts and
rising and people were buying as quickly as theyvoluntary programs for the banks. Inflation and
could, which meant the inevitable foreclosed housecurrency collapse for homeowners.
could be sold for a profit.Homeowners attempting to find some way to
But once the general awareness of the lowstop foreclosure would be better off trying to
quality of these loans spread throughout thenegotiate with their banks right now and trying to
economy, and property values stopped increasing,work something out, even if just for the short
the entire house of cards began to fall.term. This will more than likely result in a much
Unfortunately for those homeowners who madebetter chance to avoid losing the house, rather
prudent decisions and did not take advantage ofthan waiting for a different government program
the run-up in prices, the large number who wereto save them. For example, there are some
facing foreclosure helped drag property valuesproposed changes to bankruptcy laws that may
down even further. A likely response has beenallow courts to lower the total amount owed on
the calls from homeowners, concerned interestthe mortgage to reflect current market
groups, and some politicians for a federalconditions, but nothing is set into law yet and
government bailout of homeowners.certain members of Congress and the banking
The message of providing help directly toindustry will probably be successful in blocking the
foreclosure victims has been much more widelychanges, as they benefit people instead of
spread through the media than any description ofcorporations.
the actions being taken by the government to bailFrom changing the bankruptcy laws in 2005, to
out the banks at the expense of homeowners.manipulating interest rates from 2001-2006, to
First of all, the Federal Reserve has been creatinginjecting tens of billions of inflated dollars into failing
new money out of thin air to give to the banks.banks, much of what government purports to be
The central bank has been injecting tens of billionshelping the average person instead only serves to
of dollars into the financial system and are eventake what little money they are allowed to keep
considering about $200 billion more in the nearafter paying taxes. The temptations of the easy
future.credit conditions fostered by the government that
However, direct injections of liquidity have so farinflated the housing bubble does not absolve
failed to stimulate the economy. So now the Fedhomeowners of their individual responsibility to
is left to its favorite tool of inflating the moneyeducate themselves on how mortgages work and
supply and causing the dollar to fall in value. Thewhat may happen if the good times did not
price of goods like food and energy are going upcontinue. But it is not surprising that some of
dramatically, which hurts the people who need tothem also took advantage of these conditions to
eat and go to work in order to pay theirprofit in the short term, while setting themselves
mortgage. But it bails out the banks and helpsup for a financial collapse down the road.