But Morgenson suggests even more troublingly, that the fundamental assumption of affordability behind the new program is flawed: "in devising what it considers an affordable mortgage payment, the program doesn't account for all of a borrower's debts -- the first mortgage, second lien, credit card debt and automobile payments. Instead, it calculates affordability using only the borrower's first mortgage payment, insurance and property taxes" (Morgenson 2009). The program may even hurt those borrowers with second liens: "These banks -- the very same companies the Treasury is urging to modify loans that they service -- have zero interest in writing down second liens they hold because it would mean further damage to their balance sheets. Say a troubled borrower has a first mortgage owned by a pension fund in a securitization trust and a second lien held by the bank that services the loans. The servicer is happy to modify the first mortgage under the Treasury program because the pension fund holding that loan takes the biggest hit while the second lien is untouched"...
However, her moral outrage that banks were bailed out, but homeowners were not refuses to answer the equally troubling question: should these individuals with second liens be staying in homes they can ill afford? While the current program seems ineffective, what should the goal of future legislation be: to keep as many people in their homes, or to target those homeowners who have a substantial change of being able to make regular mortgage payments, once they become more financially solvent? Consumers with substantial debt, even if they can renegotiate a new mortgage, may not be helped in the long-term by even a more aggressive government program.
Now, many are calling for government relief to homeowners who have landed in this situation. In addition, a result of this crisis has been the change of policy for loan companies and banks. Most no longer give loans with no down payment. In order to relieve some of this crisis, President Barack Obama has proposed spending more than $50 billion to "reduce mortgage payments and stall further home foreclosures" (Hall).
Bailing out the American economy: Banks vs. mortgage-Holders In 2008, the United States teetered on the brink of an economic crisis. If the United States were to suffer a financial meltdown, the global economy could spiral downward in a manner unprecedented since the Great Depression. The crisis had begun in the U.S. subprime mortgage market but had rapidly spread to other sectors of the economy. The remedy of the U.S. government
Turning Points in American History Two Turning Points and Current Impact on Cultural, Social, Economic and Political Life Two historical turning points are the Social Security Act and the 19th Amendment to the U.S. Constitution. The Social Security Act, passed in 1935, was intended to provide a "safety net" for people who could not support themselves (Schultz, 2010, p. 399). This "social welfare" was a significant departure from the federal government's
The second purpose of the $700 purchase of troubled assets is to create a market for the securitized versions of these assets. As a result of the crisis, the market for these assets became illiquid. The value of securitized debt obligations became near zero, which severely impacted the balance sheet of all banks that held these assets. By creating a secondary market for these products, the government hopes to increase
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