Predictions are that the mortgage crisis will cost the financial system at least $ 1 trillion. The calculation is fairly simple. Home prices are predicted to fall cumulatively about 20%. Given such a fall about 16 million households will have negative equity, which means the value of their homes is below the value of thir mortgages. And since the mortgages are no-recourse loans, the borrowers if they choose, can simply walk away. If only half of such borrowers were to walk away, the financial system will lose $ 1 trillion.
With the security situation in Iraq improving perceptibly, it is possible that economic problems, particularly the mortgage crisis, will take center stage in the upcoming Presidential elections.
Of the three Presidential hopefuls McCain seems to be closest to Bush's policies. In Santa Ana Tuesday, he said that he was open to ideas on handling the crisis, but that the government should not reward banks or small borrowers that had acted irresponsibly.
Obama was quick to criticize McCain, saying that the Republican would' just sit back and watch,' as millions of Americans lost their homes.He personally advocates a conservative response to the crisis. His suggestions appear to be somewhat vague, although he does talk about creating a $10 billion fund for protecting homeowners, and has emphasized the need for regulating the industry.
Clinton, to be fair to her, has been most specific and consistent in her proposals. She has proposed the creation of a $ 30 billion fund to assist homeowners in crisis. She has also proposed a 90 day moratorium on foreclosures and would freeze the interest rate on adjustable rate subprime loans for a number of years. In fact she has gone so far as to recommend that the Federal Housing Administration be given enhanced powers to oversee and perhaps to guarantee or purchase defaulted loans. 'If the Fed can extend $30 billion to help Bear Stearns adress their financial crisis, the federal government should provide at least that much emergsency help to families and communities to address theirs,' argues Clinton.