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June 15th, 2009

Mortgage Moratorium Prolongs Housing Crisis



Countless programs, initiatives and strategies have been implemented to help quell the rampant rise in foreclosures. While nearly every one of those plans was designed to shorten the crisis, the end result of one law may preserve the high levels of foreclosures — extending the crisis.

Starting today, California has instituted a 90-day mortgage moratorium:

The law is expected to make lenders try harder to keep borrowers in their homes.

Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.

But supporters acknowledge the California Foreclosure Prevention Act won’t stop thousands of foreclosures from eventually happening.

There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled.

Many financial experts like Mike “Mish” Shedlock feel that legislation like this only delay the inevitable. “This bill is pure idiocy and will not stop a single foreclosure. Instead, the bill will increase late pays and foreclosures. It’s an exercise of sheer stupidity,” wrote Shedlock in a Sunday blog post.

Proponents for the moratorium like Congressman Barney Frank, said back in February (when the law was introduced) that it makes no sense to kick out families that may have the opportunity to take advantage of upcoming assistance.

One could counter Mr. Frank’s point by asking what “assistance” in the last four months, let alone year, could have effectively altered a family’s situation to the point where they would be able to avoid a foreclosure altogether? The president’s Home Affordable Refinance Program (HARP), by the latest measurements, has fallen well short of his expectations:

Early results of the program have underwhelmed Wall Street analysts. “From the very beginning, our view was that HARP would not help as much as expected,” says Derek Chen, an analyst at Barclays Capital. “Having said that, so far the program is even more muted than what we expected.”

The Treasury Department says that 12,710 loans have been completed and delivered to government-controlled Fannie Mae and Freddie Mac under the program, though tens of thousands of loans are still in process.

Are mortgage moratoriums an effective weapon in fighting foreclosures, or is their only purpose to delay the inevitable?

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2 Responses to “Mortgage Moratorium Prolongs Housing Crisis”

  1. Pat Says: June 22nd, 2009 at 10:41 pm

    Who exactly are the lenders suppose to show that they have made an effort to modify a loan before they forclose?
    Who exactly is going to check on them?

  2. Tim Manni Says: June 23rd, 2009 at 2:55 pm


    Yeah, who knows right? I’m sure on paper someone where there are specifics and contact info, but I take no comfort in that either.

    Thanks for commenting,

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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