HUD: National foreclosure moratorium not the answerby Tim Manni
The robo-signing crisis has resulted in an immediate and closer examination of how servicers are processing the influx of foreclosures. What started out with one servicer halting foreclosures in about 23 states has quickly turned into a national crisis affecting servicers in every state.
Federal regulators and attorney generals are working with servicers to determine if their improper procedures resulted in unjust foreclosures. Whether the foreclosures were justified or not, “No one should lose their home as a result of a bank mistake,” writes HUD Secretary Shaun Donovan:
The recent revelations about foreclosure processing — that some banks may be repossessing the homes of families improperly — has rightly outraged the American people. The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating — it’s shameful.
No one should lose their home as a result of a bank mistake. No one.
Does this mean that Washington should declare a national moratorium on all foreclosures until we get this whole mess sorted out? Donovan says no; he thinks that’s a bad idea. We agree. Unfortunately, foreclosures play a vital role in the housing market, especially today. Once servicers re-start their foreclosure proceedings (BofA and GMAC have already said they will soon resume business as usual), we’ll see that these are mostly legit foreclosures. Delaying all foreclosures will only serve to harm home sales, home prices, homeowners and homebuyers alike, says Donovan:
Some have suggested, however, that all foreclosures in every state, under every servicer, should be stopped. But a national, blanket moratorium on all foreclosure sales would do far more harm than good — hurting homeowners and home-buyers alike …
It seems odd at first that one of the individuals who is most responsible for championing the idea of home ownership is pushing for more foreclosures. A closer examination reveals that Donovan’s comments are not odd, but in fact, right on the money.
Home sales are extremely hard to come by these days — they are at some of their lowest levels in history. Despite record-low mortgage rates and cheap real estate, strict lending and downpayment requirements in conjunction with a struggling economy have left the majority of would-be borrowers on the sidelines.
So when foreclosure sales make up 25 percent of the market, a national moratorium would only serve to kill what little momentum the sales market has left.
Simply stated, foreclosures create a downward pressure on home prices. More specifically, it’s the longer a foreclosed property remains in limbo, the longer the housing problems remain unresolved. If a national moratorium was in place, foreclosed properties couldn’t be resold and price declines would persist, if not increase.
Foreclosures are a sad and unfortunate result for those who can’t meet their home loan obligations. But make no mistake about it, foreclosures play a vital role in our nation’s housing market. Disrupting the natural process could be very detrimental to housing’s recovery.