©Josh Thompson - flickr

©Josh Thompson – flickr

One of the most amazing images of the past few days upon the election of Barack Obama to be president of the United States was of a woman crying and stating that now she would not have to worry about gasoline prices or having to pay her bills. But if everyone is expecting the government to take care of all of their problems over the next four years, they will be sorely disappointed. The government has spent the last year attempting to stabilize the housing market and stop the foreclosure crisis, and has failed with every attempt it has made.

First of all, every program the government has put forth to help borrowers save their homes from foreclosure has been completely voluntary for the few banks that even decided to participate in them. For an institution that claims a monopoly on the use of force, the feds have been extremely reluctant to make banks repair some of the damage their poor lending policies have caused. But this does not stop the government from claiming to offer help, even though participants in the help programs are not required to provide any actual help.

This should not be too surprising, though, as many politicians at the state and federal level receive large amounts of campaign contributions from regional and national banks and financial firms. Former heads of the financial industry make their way to the head of government treasury departments and advocate for fewer regulations and more government insurance against corporate failure.

Government programs to stop foreclosure can also be expected to continue to fail due to the lack of power the government has to interfere in contracts such as mortgages. While it may be able to affect how foreclosures are pursued in the court system, it has no authority to come between a borrower and a bank and simply change the terms of a mortgage loan because the payments are in default or the market value of the property has fallen below what it was at the time of purchase.

Even with the plans that address the foreclosure problems of specific banks that the government has taken over or reached settlements on (such as Indymac or Countrywide), the loan modifications being done have been essentially standardized into a one-size-fits-all approach. This does not help the vast majority of homeowners whose conditions may have changed significantly due to a job loss or a medical disability. But such unrealistic programs will allow the banks and government to state that they have done everything in their power to help borrowers, when actually very little is done to address the specifics of each foreclosure case.

The mortgage modification programs established by the government also require that borrowers work closely with their mortgage servicing companies to negotiate a modification agreement. But servicers just do not have the resources to dedicate to such efforts, and absolutely no incentive to do so. Hiring good loss mitigation representatives costs far more than these companies are willing to spend on a typical delinquent loan, and no amount of phone calls or government persuasion will convince them to give up their flat fee profits in exchange for helping homeowners.

Interference by government in the housing market has been the greatest cause of the real estate bubble and resulting financial market collapse. Low interest rats, lack of regulatory oversight, and regulated insurance against failure have allowed tricksters and scam artists to spread the risk of bad loans around the world. And so far, the government has given banks every single dime and more that they have asked for in bailout money, while providing the victims with nothing more than voluntary, unreasonable solutions.

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