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Who wins if foreclosures halted?
Moratorium would impose huge losses on taxpayers, feds
Question of the Day
“Ultimately, this problem will require some type of global solution” to avoid further losses and harm to the economy from protracted litigation over documentation issues, she said.
“I would suggest that all interested parties consider some type of ‘triage’ on foreclosures, perhaps providing safe-harbor relief if the property is vacant or if the servicer offered a meaningful payment reduction — say a minimum of 25 percent — and the borrower could still not perform on the loan.”
Despite the threat to taxpayers and the broader economy, an army of attorneys for delinquent homeowners has stepped up foreclosure challenges in court.
Meanwhile, homeowners groups and some members of Congress, including Senate Majority Leader Harry Reid, Nevada Democrat, have called for a nationwide moratorium on foreclosures.
Some have suggested that banks should be required to rent the homes to the borrowers who have stopped mortgage payments. But most activists appear to be using questions about documentation to try to prod banks into offering big reductions on mortgage payments to the borrowers.
The Service Employees International Union, along with other community groups, staged a series of protests earlier this month demanding that banks halt all foreclosures “until all homeowners have had a full opportunity to modify their mortgage.”
Such a blanket moratorium could end up imposing an additional $150 billion a year of losses on distressed banks, mortgage investors and the government, said Robert Romano of Americans for Limited Government.
With foreclosed homes accounting for about one in four home sales, it would severely depress a market already skirting just above record lows. Sales and home prices are on the decline again after a short-lived revival spawned by a federal tax credit last spring.
“The housing market would seize up” if foreclosure sales are put on hold, he said, “all to allow delinquent borrowers to stay in homes they cannot afford.”
The foreclosure process already is plagued with delays, including waiting periods imposed by states before banks can take possession of properties and backups in getting cases on the docket at deluged courthouses.
Moreover, the federal government and many states have imposed numerous temporary moratoriums since 2008 that have had the effect of delaying the foreclosure process nationwide by almost a year, Mr. Romano said.
Now that the huge backlog of foreclosures is hitting the market in earnest, borrowers and activists are citing paperwork irregularities as one more reason to put off the inevitable, he said.
If another moratorium becomes a “Get out of jail free card” enabling delinquent homeowners to stay in their homes rent-free, that will only encourage other “underwater” borrowers to default and compound the crisis, he said.
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