Is a 90-Day Moratorium on Foreclosures a Good Idea?
November 20, 2008
During the recent election campaign, President-Elect Obama called for a 90-day memoriam on foreclosures to give homeowners more time to find a solution. The thinking behind the proposal is that rampant foreclosures will only deepen the economic crisis.
However, according to an article in American Banker, the plan has mortgage servicing companies nervous. No surprise that they oppose the plan - after all, they will suddenly have less money coming into their coffers and be prohibited from taking back homes.
Some lenders, such as JP Morgan Chase, have temporarily stopped foreclosing on homes. Chase has pretty deep pockets and can afford this largesse, but the smaller lenders and servicing companies are the ones that stand to lose the most in the event of a mandatory federal moratorium.
The hope among the smaller companies is that the voluntary suspension by the larger lenders will be enough to stave off federal intervention.
But let’s not think for a moment that JP Morgan Chase is playing “good cop,” or acting out of corporate benevolence. If foreclosures stop then the bank doesn’t need to worry about having huge inventory of houses on the corporate books. In addition, letting past due balances pile up gives mortgage companies the ability to tack on continued late fees and other default-related fees - the bread-and-butter of the mortgage servicing industry.
So is a 90-day moratorium a good idea? Probably not in the long run, though it’s an easy sell to the public. 90 days doesn’t give a homeowner a ton of time to get out from under the crushing mortgage debt, and it lets servicers jack up the mortgage balance significantly.
A better idea? Homeowners should face the problem head-on and consider foreclosure defense, workouts and Chapter 13 bankruptcy.
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[...] address this, some states have instituted foreclosure moratoriums in an effort to help troubled homeowners find ways to solve their financial problems without having [...]