Foreclosure Moratorium is Still Not the Answer

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The vision of one lone clerk at Ally Financial hastily signing off on thousands of eviction documents has galvanized the national imagination. It’s a vivid picture. One can anticipate a future episode of The Office taking shameless advantage of this embarrassing corporate negligence. Coming as it does after several years of a foreclosure crisis, this latest revelation may indeed prove to be the straw that breaks the camel’s back.

But where was the rage before now?  Where was the rage over no document mortgage loans, over cozy relationships between mortgage lenders and appraisers, and over the contrived Option Adjustable Rate Mortgages? Surely all this was cause enough to unleash the fury!

Perhaps the day of reckoning now is upon us. However, as part of that reckoning it would be both misguided and counterproductive to implement a moratorium on foreclosure proceedings. A moratorium only delays the inevitable. As cruel as it may be to say, a mortgage so delinquent as to be one final step from eviction and sale cannot and should not be further delayed because clerks failed to exercise due diligence. Document procedures should be verified, certainly. But that does not require a moratorium.

If the present foreclosure disposition pipeline, already choked with delinquencies, loan modifications, vacancies and short sales, is forced to cease, the real estate and housing construction businesses will not recover for many more years.

Supporters of a moratorium contend that such a move will help keep large numbers of borrowers in their homes. However, one need only look at the roughly 50% of delinquent mortgage payments on loans that have already received a temporary or permanent medication under the Home Affordable Modification Program (HAMP) to realize that hope is unrealistic because of the negative equity positions of so many borrowers.

Be mad at the institutions that created this mess in the first place. Be mad at those who committed fraud. Sympathize with those facing foreclosure and contribute to efforts that extend relief. But don’t postpone the inevitable.