The foreclosure moratorium idea will amount to nothing but headlines. Image: CC hragv/Flickr
Calls for a nationwide foreclosure moratorium have been rising, but the White House and the housing industry are against it. A foreclosure moratorium has not been declared, but many mortgage lenders have imposed what amounts to a voluntary moratorium by suspending foreclosure proceedings on their own. Real estate experts and administration officials agree that a foreclosure moratorium would damage a weak housing market that is trying to recover.
Foreclosure moratorium unlikely
A foreclosure moratorium is showing up in a lot of headlines, but chances of it happening are unlikely. The reaction by mortgage lenders and government officials to the shoddy, shady practices of the mortgage servicing industry has already stopped foreclosure proceedings across the U.S. ABC News reports that major U.S. lenders have admitted court affidavits for an untold number of foreclosures are rife with errors and forged signatures. In many cases, mortgage servicing employees signed foreclosure documents without reading them. As a result, JPMorgan Chase, Ally Financial’s GMAC, Bank of America and Goldman Sachs have suspended tens of thousands of foreclosures. Bank of America, the largest U.S. lender, has suspended all U.S. foreclosures.
Negative impact of a foreclosure moratorium
Attorneys general in 40 states today announced they’re investigating the mortgage servicing industry. Meanwhile, housing industry experts and government officials are saying that a foreclosure moratorium would hurt, not help. Lawrence Yun, chief economist for the National Association of Realtors, told ABC News that delaying closure on 30 percent of the housing market would hold back economic recovery. He said getting foreclosures off the market is part of the natural healing process. Bloomberg reported that Treasury Secretary Timothy F. Geithner told Charlie Rose a foreclosure moratorium would leave homes empty longer and further drive down real estate prices.
Foreclosure moratorium winners and losers
A foreclosure moratorium would help the homeowners being foreclosed upon. Kelly Campbell at U.S. News and World Report said that of most homes in foreclosure, the mortgage holders haven’t made payments in more than 18 months. A foreclosure moratorium would let them live longer for free. But buyers who have put money down and are waiting for the paperwork to go through are left high and dry. Plus, banks servicing the bad loans can’t get their collateral. Campbell writes that ultimately homeowners and taxpayers would pay the price with higher fees and taxes to support new regulations and more bailouts.
