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What Homeowners can Expect from the Financial Crisis

As the government struggles to bring stability to the financial markets, homeowners are wondering what the effect will be upon them. Those who are near foreclosure want to know if they will be allowed to remain in their homes, and those who need to sell their home are concerned about the downward spiral in home prices.

The bottom line is: the recent crisis will touch everyone. In the short term, government intervention will seem to have a positive effect. The long-term outlook, however, is much more unsure. Initially, home prices will see little impact from the influx of federal funds; prices may stabilize somewhat, but the experts don't project a turn-around anytime in the foreseeable future. Additionally, the government's actions will create a new bureaucracy that will, at some time, offer heavily discounted foreclosures for sale in competition with existing homes. And, the bill for these bailouts will create a tremendous burden on the government's coffers and pressure lawmakers to raise taxes to cover the costs. There will also be inflationary pressures as the government prints money to pay some of its new obligations. It will take months for the full effect to be realized, and the end result is a big question mark even for the experts.

While we don't know what the ultimate outcome will be, I would offer the following suggestions:

  • If you are in immediate danger of foreclosure, contact your lender and try to renegotiate your mortgage. In response to the foreclosure crisis, the government has begun issuing millions of dollars in "Hope Bonds" to help those homeowners facing foreclosure. Waiting may put you in a less favorable position as banks tighten their lending restrictions and struggle to remain solvent.
  • And, while the government may step in with additional programs, nothing is certain. It's better to try to work out an arrangement sooner than later.
  • Those needing to sell their homes should follow the guidelines in The Seller's Corner, and should make certain their home is priced competitively. Aggressive action may be necessary, but if selling is the only option, it must be taken. Homes are still selling, and if yours is the very best available and is priced right, it will sell.
  • If you are in the market to buy a home, you'll probably have to come up with more cash than you might have a few months ago. While interest rates have eased a bit, banks are tightening their lending restrictions, requiring higher credit scores and down payments. But the good news is: there are great bargains out there in all areas of the country, and there are lenders who are ready to make loans to credit-worthy borrowers.

My ultimate advice is to proceed with caution whatever your situation is. These are uncertain times and any major financial decision should be made only after serious consideration of all the options. What we do know is that the economy is cyclical, and the United States has both the capacity and the will to overcome the present crisis. If congress will set aside partisan bickering-perhaps an unrealistic expectation-they can solve this problem. But, regardless of how the bailout is structured, both the housing and financial markets will recover. This time, however, the recovery may take longer than in the past.


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