Wall Street Mess and the Foreclosure Crisis
When America woke up this Monday morning, the news that hit them is certainly something that one will not expect. Investment giants Lehman Brothers and Merrill Lynch were suffering from losses so huge that the former was forced to file for Chapter 11 bankruptcy while the latter was sold off to Bank of America. It would seem that the financial troubles experienced by these investment firms were tied to the credit and foreclosure crisis.
In the last couple of years, many companies have suffered from huge losses due to the large number of mortgage defaults. As experts and officials analyzed the reasons for the high foreclosure rate, it was discovered that many lenders, brokers and mortgage servicers engaged in illegal lending practices.
The resulting mess was too huge to clean up – millions of homes in some stage of foreclosures, declining home prices, bankrupt lending companies and high incidence of foreclosure scams.
This summer, the government tried to repair the damage of the foreclosure crisis by passing a housing bill that includes provisions for the rescue of distressed homeowners as well as mortgage lending companies. The said bill will be implemented on October 1.
The collapse of these Wall Street companies will certainly leave a significant impact on the housing market. It can be expected that more families will be facing foreclosure as unemployment rates will jump in the coming months. Aside from this, credit card debts and delinquency rates can be expected to surge as families cope with the new blow to the economy.
The foreclosure crisis is certainly a problem that needs to be addressed in order to reduce its impact on the other industries. It is not enough that the federal government bails out the distressed homeowners and mortgage lenders. Lenders and troubled borrowers must also try to find a long term solution that will both allow the two parties to avoid foreclosure.
September 20th, 2008 at 2:17 am
I wonder what will happen with the real estate short sales when the government buys up all the bad loans.