Fed: Foreclosures are unpleasant, but essential - further drop in home prices is necessary

[w¡n9Nµ7 §£@¥€r 123]

Large-scale government intervention in the US housing crisis would be counterproductive and prevent a "necessary" correction in home prices, according to a Federal Reserve study released Monday.

The study by economist William Emmons of the St. Louis Fed concluded that "government interventions directly in housing or mortgage markets are not necessarily the best policy responses."

"By allowing markets to sort themselves out quickly, a foundation for sustainable homeownership and responsible mortgage lending can be re-established," the regional branch of the central bank said.

The report said home prices in many parts of the country may fall from their peak levels in 2006 or 2007 by the largest amount in several decades, but that "from an economic standpoint this decline of overvalued properties is necessary."

"If house prices are allowed to remain artificially high, homebuilders will make the eventual correction even worse by supplying more unneeded houses and driving prices down even further," the report said.

The economist noted that the phenomenon of home foreclosure is an "unpleasant, but essential aspect of the mortgage market."

"In order to ensure the mortgage market functions effectively, the lender must have the ability to seize the borrower's property as collateral," the report said.

"Without the possibility of foreclosure, mortgage rates would be more on par with those of credit cards," said Emmons.

http://ca.news.yahoo.com/s/afp/080707/usa/...roperty_finance

[Ban Hammer 13,352]

i thought you was done trolling?

[Sheriff Uling 3]

I happen to agree that the market should be allowed to correct itself without government intervention. It's a shame that so many people reached out for what they presumed would be a great investment in the American dream and fell short. There are other domestic issues our government can invest in like schools, infrastructure, homeless, jobless, and the such. Sometimes markets fall and sometimes bad things happen to great people. However, folks should have done more research and used greater foresight into the possibilities of the risks that they entered themselves into. Were they swindled? Not really! I've spoken with several lenders during that period and all of them indicated the risks involved with each particular loan option. To me folks looked at buying a home like they were buying a car, they were sold on the lower payments that were within their reach/budgets and did not take into account the risk of market fluctuations with the interest rates. Who's to blame?

[w¡n9Nµ7 §£@¥€r 123]

I happen to agree that the market should be allowed to correct itself without government intervention. It's a shame that so many people reached out for what they presumed would be a great investment in the American dream and fell short. There are other domestic issues our government can invest in like schools, infrastructure, homeless, jobless, and the such. Sometimes markets fall and sometimes bad things happen to great people. However, folks should have done more research and used greater foresight into the possibilities of the risks that they entered themselves into. Were they swindled? Not really! I've spoken with several lenders during that period and all of them indicated the risks involved with each particular loan option. To me folks looked at buying a home like they were buying a car, they were sold on the lower payments that were within their reach/budgets and did not take into account the risk of market fluctuations with the interest rates. Who's to blame?