FIRST POSTED IN MARCH 2008 (1 YEAR BACK)
Some analysts said that the subprime problem and credit crunch is caused by the fall in the housing prices in USA. If this problem is not solved, the financial system will continue to be under great risk.
What can be done to solve the housing crisis in USA? Some measures being proposed include the following:
a) Government to take over the mortgages
b) Help for borrowers to repay their debts
c) Incentives to encourage new buyers of houses
What is the solution? Singapore faced a similar crisis between 1996 to 2003, when the property market dropped by 30% for private and HDB properties. An effective measure was introduced by MAS, which stablilised the market and led to a recovery in 2007.
What is this measure? Perhaps a similar measure can be introduced in USA ?
HERE IS THE ANSWER:
The MAS allowed a borrower to refinance a mortgage loan with the CPF savings taking lower priority. The lender does not have to worry that the property price has fallen below the purchase price leading to negative equity, as the CPF savings is exposed first. This allows the lender to take a long term view and give time for the housing price to recover (which happened subsequently).