How would you fix the mortgage crisis?

[Qikdraw]

Just curious what you would do to fix the problem?

Here is my idea...

The government buys out the mortgages that are at, or near, forclosure, but at 1/2 to 3/4 of the value of the loan. This helps the banks out, but also allows them to suffer monitary loss because of thier finangling of the market.

The government makes new loan terms with the homeowners to lower their payments. Doing a 40 or 50 year loan if need be. At the end of 5 years, the loan is reevaluated to see where the homeowners are financially, and reset to 30 years loans if possible, if not same terms as before for 5 years. The homeowner can come back sooner if they can afford to and refinance the loan before that first 5 years are up.

The banks can buy back the loans, but at full value. Also following the same terms as the government sets. They would still make money off the interest of the loan, so it works in their favour too. The government then also makes money off the deal, which is much better than just giving money to the banks.


There is my idea. I donno how well that would work, as I am not an economist, but it seems as though this would be fair for everyone. I know the question would come up where would we get the money for this? Well the Chinese of course. Thats where we are getting the money for everything else right now.

Qikdraw

[Skinview]

Nothing should be done. Both the lenders and the borrowers were reckless, and giving them a break only encourages more of the same. Liberty and responsibility go hand in hand.

[usmc1]

If all things were equal, I'd say no bail-outs, at all! If one is to reap the "benefits" of capitalism, then one must also suffer the risks, mustn't one?

However, all things were not equal. Consumer protections were lifted, predations happened, and innocent investors, stock-holders, mutual funds, 401Ks, and other stake holders, including the national economy, were adversely affected.

Frankly, bail-outs, or not, some economists are saying it will take several years for the economy to recover and new regulations and controls to be put into place.

Were it my decision, I'd start with trying to devise a plan whereby people who are able to pay a "fair" fixed rate get to keep their homes allowing investors to recover principal and a "fair" return on their investments. People owning their homes results in spending to improve, and furnish, and repair, and insure, and improve, and landscape or decorate. This helps the overall economy.

I'd suggest a plan to establish a Super-Fund of willing participating banks, investors and mortgage lenders through FHA, VA, and the other related Federal programs. That would be a good investment for America. And help the people hurt the most.

Homes setting vacant decay, add to blight, and ultimately drain the economy. People ousted from their homes results in transience, crime, despair, disruption of family life, increased physical and mental ailments.

But, having said that, I'm not certain that I would underpin the investment banks, speculators, developers, mortgage lenders who were cashing in on ARMS and other exotic interest plans and grossly inflated home prices.

[MoonShadow]

I am with Skinview and usmc. No bail outs!

This is one of many reasons why our government gets so big. Irresponsible businesses and consumers make deals, they fail, and then they turn to the taxpayer and want help!

You went in on a subprime knowing you had marginal to bad credit? And then the market falls out? Sorry, you have to accept the lumps. As a taxpayer, I surely do not want to pay for your mistake.

[nacktman]

Not sure how I would fix the mortgage crisis, but I know the shrub's plan ...

http://www.bartcop.com/lost-million-homes.jpg

[KirkOntario]

Nachtman you are quite correct. Bailing out the banks is wrong. Bailing out the borrowers is also wrong. To do so is setting up the market for irresponsible borrowing and lending and making citizens and big business dependant on big government.

[Peter B]

If banks and individuals are bailed out then it means the following:
When the going is good, we are individual capitalists, persuing profit by all means.
When it goes wrong, we become socialists in order to give the government the responsibility for wrong individual behaviour.
Privatise the profit, socialize the loss.

[Qikdraw]

Well right now the banks are getting a bail out, and the people are getting nothing. Which is the same as usual. We need a plan that helps both. Otherwise we just encourage corporations to futz around, take loses, screw normal people and then run to the government.

Qikdraw

[Boreas]

Well right now the banks are getting a bail out, and the people are getting nothing. Which is the same as usual. We need a plan that helps both. Otherwise we just encourage corporations to futz around, take loses, screw normal people and then run to the government.

Qikdraw

Amen. Especially when the mortgage crisis was created by big business.

[KirkOntario]

Boreas do people who borrow money for houses they can't afford under terms they don't bother to read or understand bear none of the blame?

[Nude in the North]

Seems to me the simple solution would be to Cap interest rates for mortgages.
Anyone with an existing mortgage should have their interest rate reduced to 6% or 7% FIXED.
Monthly payments re-calculated , Late payments "skipped" and transfered to the end of the loan. Forclosures Halted for anyone with a "Balloon" or Variable rate.

If it takes some money from the government to get people through their Crisis, then that money should be made available. But no Bank or Finance company should get a dime unless they take the steps to insure the Home Buyer Does NOT lose their home.

Part of our responsibility as a society is to protect the vunerable citizens in it.
The lending Predators took advantage of a lot of people because they could. We need to make sure that things like that Can't happen anymore.

[NudeTopher]

Boreas do people who borrow money for houses they can't afford under terms they don't bother to read or understand bear none of the blame?

When buying a house you always have a lawyer review the buy/sell contract, the mortgage, and all of the other details. The lawyer is also at the closing to protect the buyer's interests. Shouldn't the lawyer, who is being paid for both expertise and experience counsel the buyer regarding the terms of the mortgage? Why hire a lawyer if the lawyer doesn't provide advice during the transaction?

[alfredr]

To KirkOntario: Yes, of course the people who bought a house they couldn't afford under terms they didn't read, or understand completely bear part of the blame. They are to blame for wanting to own their own home or move up in the American dream and not being financial experts or legalese experts, besides suffering from some of that good old-fashioned irrational exuberance that makes us all believe that conditions that have existed for 2 years will continue for the next 20 years.

'Creative' financing and marketing of these new financial 'products' led many to believe they could afford that house. And that is the fault of the capitalists. But many of the capitalists suffered from the same irrational exuberance also. Just because they are financial experts doesn't keep them from believing in continued good times also. No one wants to believe. "Watch out, there is a downturn coming." when the good times just keep on coming. And then everyone gets caught when it actually does turn down.

As usmc1 points out, the ripple effects of allowing such a significant section of the economy to suffer its just reward for the risks it took will affect virtually all of us and be felt throughout much of the world. Unless your house is paid for, or your job is recession-proof, you could be hurt by this also.

There are some good ideas here, Help the borrower and the lender will benefit also. I thought we had learned that trickle-down was a very inefficient way to get anything down to the bottom.

Quikdraw's idea that we get the money to do this from the Chinese is ironic because it was our money in the first place. This is what globalization has wrought.

[Centauri4]

Seems to me the simple solution would be to Cap interest rates for mortgages.
Anyone with an existing mortgage should have their interest rate reduced to 6% or 7% FIXED.
Monthly payments re-calculated , Late payments "skipped" and transfered to the end of the loan. Forclosures Halted for anyone with a "Balloon" or Variable rate.



I believe the terms of mortgage loans should be defined by a governmental review board empowered at the national level to seek out anyone in "non-compliance" with whatever terms they define and CLOSE THEM DOWN! My rationale for this is that it seems are far to many "loopholes", extra fees, administrative costs, closing costs, "points" and "yada yada yada" associated with the present system. For Pete's sake! As consumers ALL OF US are entitled to walk into a business or a store, look at a product, understand what it is made of and where it originated from and finally know EXACTLY what it costs to walk out of the store with it. I feel this only "seems to be true" when it comes to buying a home, but allow me to add THE PRESENT SYSTEM is not entirely the mortgage companies (and banks) fault.

Buying a home has so many "hidden" or "backend" (life of the loan) costs the typical person is hardly capable of understanding, properly appreciating or knowing for certain they can afford. And honestly I do not think even taking a free "Buying your first home" class at the local community college will help very much.

Why should a mortgage company be allowed to earn 6% or 7% on a loan when the best interest rate consumers can expect to get FROM banks is something like 3%?

Obviously I am no financial genius, but I think the 6% rate means a bank is earning the 3% they are paying SOMEONE directly from you and I and the remaining 3% (as in 3%+3%=6%) is the lifetime profit from the mortgage.

Using a Mortgage Calculator on AOL I just figured a $250,000 home for a 30 year mortgage at 6% and the first "Monthly payment" was $1,499. Of this $1,499 the amount the "calculator" estimated as "Interest paid" was $1,250 or 83% of the payment (according to my desktop calculator).

Can anyone explain to me but what amazing mathematics are being used to figure ANY product or service should be returning 83% of its cost to the "Originator" (manufacturer/distributor/seller) at any time during its "life"? (i.e. while you "own" it or during the time you use it.)

Maybe it is naive of me to think a lunch box brought for my kids are a Big Box retailer does not return 83% profit to the store at the cash register, but if I really "knew" that was the case I would always and without fail buy brown paper bags! In the realm of mortgage loans, what other choice does the consumer have? The is no "brown bag alternative" to the nice looking, sturdy, metal lunch box with non-pinching handle and cute cartoon figures on the outside!

The home loan industry has constructed a virtual "Roman Empire" for itself over the past 50, 60 or 70 years and now that Rome in burning they want the entire population to feel sorry for them? "F*" that!!!

[Croydon]

This is such a complicated situation that I am unsure what the correct solution is.

I blame both buyers and lenders for the mortgage/housing fiasco we are facing but I place more blame on lenders.

At the height of the real estate market, agents and lenders saw nothing but $$$$$. Greed is what motivated them and they had the perfect victims. Many of the home owners who bought under sub prime loans were first time home buyers. They were so happy and eager to be able to buy a home for their family that they were willing to do anything. Lenders knew this and took advantage of their vulnerability. The beauty of the sub prime loans is that it allowed people to buy homes with either no money down or very little down payment. Their homes were 100% financed by the bank. Consequently, people were buying homes they had no business buying.

Lenders misled them on the premises that if their interest rate goes up and they can not pay the new balance, they can refinance. Well many home owners couldn't refinance because they had bad credit. These home owners should never have been approved for loan in the first place. On the flip side, these home owners should have known better. They should have used common sense and know that they could not afford the home they purchased.

Solution:

Should we bail out lenders? No. Should be bail out home owners? No. Both parties were negligent and careless and they are facing the consequences of their actions. I do believe that the government should work on inacting a law that prevents this. Lenders should be held accountable and they should have proper procedure, rules and regulation.

[Centauri4]

Oh, yeah. I forgot to mention this whole idea that the lending institutions are also making money off the mortgage notes (promises to repay) by using them as collateral for other investments of their own (with more percentage coming back to them IF the collateral loans get paid).

So to backpedal for a moment... If the lender is making the 3% interest they pay on my deposit off of some other borrower that is repaying their mortgage, and ALSO using that same mortgage "note" as collateral for some other (sometimes questionable) loan, what is it the lender is actually doing to earn their money? All they are doing is pushing paperwork around and "managing lending risks", they are not PRODUCING a product (a tangible good) of any sort, and they are not even producing reusable knowledge that can benefit others (as I do working in the Information Technology field). "Reusable knowledge" is stored facts and procedures that can be used to solve other problems and accomplish the production of tangible products (my definition).

So the lenders have 6% coming back from us.
And they also have X% coming back from other projects financially backed by our home mortgage notes.

Am I understanding this correctly? Double incomes coming into a single organization that actually produces nothing (no tangible, exportable, or "real" commodity).

6% from us, plus (let me be fair) another 6% from a guaranteed small business capital startup loan (or something; which is also probably a twenty year loan structured to return 83% of those early payments profit/interest to the lender).

So now we have lenders making a "solid" 12% on whatever money they have "under management". Hey, that sound like a pretty good deal! What do I need to start my own mortgage company?? I would rather be making 12% managing someone else's money than earning 3% from a bank account I can hardly afford to touch except in case of a "family emergency"!
(that's 4x the profit for them versus me)


HERE'S THE BIG FINALE
Our national economy is so "old school" with these huge lending institutions and "funds" that contain billions of dollars in them. The mega-funds are like huge oil tankers cruising the economic ocean just waiting to "take a hit" from a proverbial iceberg or terrorist missile strike. One "direct hit" and the fund starts hemorrhaging value exactly like an oil tanker hit by a missile, and I think this present "mortgage crisis" is the equivalent of several huge financial mega-tankers taking direct hits all at the same time! One of these tankers was named the "Bear Sterns" for those who are following the latest news; that "ship" was going down fast and many people who were waiting for their "oil" to arrive are going to get NOTHING.
N - O - T - H - I - N - G... That is what our present system has given them.

Now as far as the government's involvement... It is like a financial 9/11 and the government, our elected representatives wherever they may be, are saying "Well, we were doing everything we 'thought' we should be" (not an actual quote) and yet tens of thousands of home buyers are being terrorized out of their homes in a scenario with so many parallels to the attacks on New York it makes me sick.

The terrorists exploited a weakness in our national security and 2,000+ people died!
The financial managers at Bear Sterns exploited a system and 2,000+ investors lost everything!

The present system is broken. Period, end of story.
The was no homeland security before the World Trade Center attacks, and there is no "homeowner security" in the present system of mortgagee exploitation!

A mortgage is such a critical component to American families and the overall financial security of the country, they should be restructured in a simple (less exploitable) plan that COULD NOT under any circumstances lead to a single company holding so many notes that another Bear Sterns can happen again.

$250,000 home.
360 monthly payemts over thirty years.
15% lifetime of the loan interest (=$287,500, or $37,500 to the lender)

Total cost to the consumer... $287,500.

Instead of the AOL Mortgage calculator example I used earlier...
$250,000 home mortgage.
$289,595 interest paid.
------------
$539,595! (that is MORE THAN 100% profit! - Are you kidding me?!?)


Some people may say you can't expect a lender to only receive $1,250 a year for "managing" the home loan, and I would counter with, "Yes, but this is just one account!" If a company has 10,000 accounts they can electronically track and manage using minimal manpower over the entire 30 year life of the loans, then this is $12,500,000 per year they are getting by being in the "mortgage business". That's more than fair in my book!

Not good enough for them? Find another line of work!


And this is just a "weak" example using only one company (Sterns) in the illustration by an uninformed consumer such as myself. I feel certain there are many, many more highly trained minds then my own that could tell us of the other 5, 10 or 20 companies (financial mega tankers) being hit nearly as hard (by their own greed?) such as Countrywide home mortgages (at least they are trying to fix things...).

Something has got to be changed.


.

[Naturist Mark]

Should we bail out lenders? No. Should be bail out home owners? No. Both parties were negligent and careless and they are facing the consequences of their actions. I do believe that the government should work on inacting a law that prevents this. Lenders should be held accountable and they should have proper procedure, rules and regulation.

Well we ARE bailing out the lenders, because the large scale failure of too many of them would take down what is left of the economy. (And because too many powerful people would be hurt.)

We SHOULD bail out the borrowers - for the same reason, and because of fairness (how dare we bail out the banks and not the borrowers), and because many of them were hoodwinked. Everyone would be better off if borrowers continued to make mortgage payments they can afford - just as they did before their payments were increased.

Unless someone knows a way to limit losses to only those responsible.

-Mark

[Centauri4]

Under the 360 payments, $287,500 loan arrangement I described above. The consumer's monthly (simple) mortgage payment is $798.11!

That leaves more money available to pay property taxes, maintain the property, send kids to college and stimulate the economy in other ways!

So the AOL Mortgage calculator payment of $1,499 minus the simple payment of $798 leaves you, I and everyone with $701 additional dollars in our pockets each month, or the equivalent of getting an ~$8,400 dollar a year raise in your salary.

Oh, and an extra $8,400 the government can tax you on annually.

[Nude in the North]

Is anyone out there willing to withdraw $100,000 from their retirement account and send it to me under the agreement I will pay them back $106,000 30 years from now? How about $ 295.00 per month?

I didn't think so.

And if you expect Compounded interest from your savings account. Your gonna have to expect to pay it on loans too.

We gotta be realistic. The guys with the Billions arn't gonna risk it for nothing. And if we'er going to expect people to only buy houses they can afford, not many houses will be bought. It's hard enough for most people to survive these days without expecting them to save up $10,000 for a down payment on a mortgage. In many places you can buy a house for not much more than you can rent. Even less in some cases. But you can't pay the rent and have anything left to save for a down payment.

It's a Catch 22 for many americans. Unless of course your so rich you don't need banks.

You can Blame anyone you want. But Blame doesn't fix the problem.

[Peter B]

Iwould agree with Nude in the North.
The general consensus of this threat is that people should be responsible for their own actions.
But their actions, wrong as they were, now effect far more people then themselves or the institutions involved.
As such governments have to step in and use their power to bail out everyone in order to prevent a lasting recession.
Nobody wants a new New Deal, hobos, Hoovervilles and Woody Guthry is long dead

[usmc1]

Iwould agree with Nude in the North.
The general consensus of this threat is that people should be responsible for their own actions.
But their actions, wrong as they were, now effect far more people then themselves or the institutions involved.
As such governments have to step in and use their power to bail out everyone in order to prevent a lasting recession.
Nobody wants a new New Deal, hobos, Hoovervilles and Woody Guthry is long dead

Yes he is. But, there are those of us among you who still sing the songs, attend the meetings and educate, organize and mobilize.

That aside, I believe the smart thing to do would be to create a super fund type pool of money and resources through VA, FHA and Fannie Etc, enabling those who are able to pay off their mortgages at a reasonable amount of principal and interest. This would allow people to retain their homes and the legitimate lenders to recoup on their investments.

Tax credits for write offs certainly could be part of the mix.

[nacktman]

Iwould agree with Nude in the North.
The general consensus of this threat is that people should be responsible for their own actions.
But their actions, wrong as they were, now effect far more people then themselves or the institutions involved.
As such governments have to step in and use their power to bail out everyone in order to prevent a lasting recession.
Nobody wants a new New Deal, hobos, Hoovervilles and Woody Guthry is long dead

Nobody? You might want to rethink that portion of that statement ... I can think of a few - those who directly caused this crisis want a "new deal" so they can avoid responsibility for it, and those getting a 'raw deal' because of this crisis would love a "new deal".

Hobos are like air they are here and will be, only now those that want to be 'hobos' are being joined by those forced to be by this crisis.

"Hoovervilles" are already springing up all over the place but mainly in California. The BBC has already aired a piece on them - where is the US Media?

And don't be so sure Woody is dead - long or otherwise. As long as he is remembered he is not 'dead'.

*****

The simple solution would be to convert all mortgages to a fixed rate that is low enough for people to make the payments - crisis halted.
But, that will not happen anytime some because that would adversely affect the 'profit' margin of lenders and we know that can not be allowed to happen.
It does not matter that such a move would actually be a real 'stimulus' for the economy and not a further increase in the debt from borrowing money from a foreign nation to 'give' everyone $600.00.

[Naturist Mark]

And don't be so sure Woody is dead - long or otherwise. As long as he is remembered he is not 'dead'.

Word that

http://weblogs.elearning.ubc.ca/ross/archives/This_Machine_Kills_Fascists.gif (http://www.yourstandardlife.com/audio/All_You_Fascists.mp3)

Click on the fascist killing machine above to hear Billy Bragg perform an acoustic version of Woody's "All You Fascists" - my choice as the theme song for the 2008 election.

note: a few of you Air America fans may recognize the song from the opening theme for The Majority Report (http://en.wikipedia.org/wiki/The_Majority_Report) with Janeane Garafalo and Sam Seder. It is my honor to share part of the blame for that - blogger Annatopia (http://annatopia.com/) put a shout out for music files to be mixed into the intro and I provided the copy of Wilco's version (http://www.suddenlyeverythingsucks.com/jukebox/billy_bragg_all_you_fascists.mp3) of "All You Fascists" that got used.

[alfredr]

According to a story last night on "Marketplace' heard on NPR, someone is organizing a 'Private National Mortgage Acceptance Company" to be known as PennyMac that would buy mortgages at a discount and then work with the borrowers to convert them to affordable, viable terms that would allow people to keep their homes and PennyMac to profit. The key would be to but mortgages from mortgage-holders cheap enough. The mortgage-holders would be the bigger losers here, but not as much as if they kept those mortgages that kept going bad.

I think someone suggested a similar scenario involving the government, but private enterprise seems to see an opportunity here. They thought they could get started in early May.

Hang on!

[nacktman]

According to a story last night on "Marketplace' heard on NPR, someone is organizing a 'Private National Mortgage Acceptance Company" to be known as PennyMac that would buy mortgages at a discount and then work with the borrowers to convert them to affordable, viable terms that would allow people to keep their homes and PennyMac to profit. The key would be to but mortgages from mortgage-holders cheap enough. The mortgage-holders would be the bigger losers here, but not as much as if they kept those mortgages that kept going bad.

I think someone suggested a similar scenario involving the government, but private enterprise seems to see an opportunity here. They thought they could get started in early May.

Hang on!

Hang on is right. Should this come about as advertised it would be a wonderful thing.

Leave us hope it is so.

[Naturist Mark]

According to a story last night on "Marketplace' heard on NPR, someone is organizing a 'Private National Mortgage Acceptance Company" to be known as PennyMac that would buy mortgages at a discount and then work with the borrowers to convert them to affordable, viable terms that would allow people to keep their homes and PennyMac to profit.

Ironically the people behind this new venture are former executives of Countrywide Financial. (http://www.forbes.com/markets/commodities/2008/03/24/pennymac-countrywide-update-markets-equity-cx_ra_0324markets29.html)

[nacktman]

http://www.bartcop.com/banking-regs.jpg

[Sanslines]

Well we ARE bailing out the lenders, because the large scale failure of too many of them would take down what is left of the economy. (And because too many powerful people would be hurt.)

We SHOULD bail out the borrowers - for the same reason, and because of fairness (how dare we bail out the banks and not the borrowers), and because many of them were hoodwinked. Everyone would be better off if borrowers continued to make mortgage payments they can afford - just as they did before their payments were increased.

Unless someone knows a way to limit losses to only those responsible.

-Mark

The question is what borrowers should be bailed out? It is easy for any of us to make a simple statement such as 'we should bail out those who were duped into borrowing' but in the end the real challenge is to somehow separate those who were actually 'duped' from the many individuals who speculated, or borrowed in spite of being told that they could not possible afford what they were attempting to purchase. This situation is so complicated that it would take an enormous legal effort to try and sift through the mess in some attempt to separate the truly innocent from those who honestly knew better but borrowed anyway. As far as the truly innocent are concerned, perhaps both their legal representation and lender representation failed them and they should be held acountable in those particular cases.

[Qikdraw]

The question is what borrowers should be bailed out? It is easy for any of us to make a simple statement such as 'we should bail out those who were duped into borrowing' but in the end the real challenge is to somehow separate those who were actually 'duped' from the many individuals who speculated, or borrowed in spite of being told that they could not possible afford what they were attempting to purchase. This situation is so complicated that it would take an enormous legal effort to try and sift through the mess in some attempt to separate the truly innocent from those who honestly knew better but borrowed anyway. As far as the truly innocent are concerned, perhaps both their legal representation and lender representation failed them and they should be held acountable in those particular cases.


I don't think it would be that hard really. Banks already have all the financial information of who they lent money to, use that to find the ones most seriously effected. Investors will have a higher income so its easy to count them out. One of the jobsites I used to work at, a salesman quit the company 6 or 7 months ago, he had bought two houses up in this area and both are going on auction very soon. In talking with his former co-workers it doesn't seem like he cares over much as he still has 5 or 6 houses, plus a large amount of cash in hand. Obviously he is an investor, and doesn't need help. :p

Qikdraw

[usmc1]

I don't think it would be that hard really. Banks already have all the financial information of who they lent money to, use that to find the ones most seriously effected. Investors will have a higher income so its easy to count them out. One of the jobsites I used to work at, a salesman quit the company 6 or 7 months ago, he had bought two houses up in this area and both are going on auction very soon. In talking with his former co-workers it doesn't seem like he cares over much as he still has 5 or 6 houses, plus a large amount of cash in hand. Obviously he is an investor, and doesn't need help. :p

Qikdraw

I'd anser the question this way. Any borrower who is capable, based on an income and debt formulation, of making the modified principal and interest mortgage payment should be permitted to do so.

I'm not certain that is a bail-out, as much as it is a form of restructuring as used to be available under either chapter 11 or 13, of the old bankruptcy act. Businesses still get to "restructure" their debt. Consumers deserve the same opportunity.

[Sanslines]

I don't think it would be that hard really. Banks already have all the financial information of who they lent money to, use that to find the ones most seriously effected. Investors will have a higher income so its easy to count them out. One of the jobsites I used to work at, a salesman quit the company 6 or 7 months ago, he had bought two houses up in this area and both are going on auction very soon. In talking with his former co-workers it doesn't seem like he cares over much as he still has 5 or 6 houses, plus a large amount of cash in hand. Obviously he is an investor, and doesn't need help. :p

Qikdraw

I think that your area might be a bit different in that many people who could not afford LA prices fled to the high desert communities in search or more affordable housing. When the economic situation sours, the desert commuter communities are generally the first to experience the effects. The situation that is now occuring in the Palmdale area is very similar to that which occured in the early '90's when defense spending severly declined and many lost their jobs. Instead of major job loss now, the problem is resetting mortgage rates to generally unaffordable levels.
Real Estate in California tends to be very cyclical with some extreme highs followed by market corrections. The rapid price increases in the '80's and very early '90's were followed by a severe price correction that lasted until the late '90's ie around 1997. Prices then increased very rapidly and are now finally adjusting. If prices are not allowed to reset due to market interference, then another whole set of problems will develop as prices will be maintained at a artifically high level that will continue to price many people out of the market. Prices must come down or else a whole generation of Americans will not be able to afford to enter the housing market.

Another thing to consider is that many American financial firms actually do not control the debt and have little control over readjusting mortgage rates. American debt is being financed more and more by foreign countries in general. Specific to mortgages, much of the debt was repackaged and sold to foreign firms who have control and the ultimate say if mortgage rates can be adjusted. Thus, this mortgage crisis problem extends well beyond USA borders.