HW readers who have been reading this site for awhile know about the consumer lobby’s effort to institute a national foreclosure moratorium. The most common call these days seems to be around six months of subsidized living for borrowers who can’t afford their mortgages. The consumer lobby issued another press release yesterday on the topic, this time focusing on the California market.
“California is in the midst of a foreclosure crisis that could rob hundreds of thousands of homeowners of the American dream,” said Kevin Stein, associate director of CRC. “Many California homeowners are facing foreclosure because they were misled by unscrupulous mortgage brokers and lenders. We are asking the largest lenders in the state to take leadership so that families can keep their homes and California’s economy won’t suffer.”
I realize there is a crisis, and that many borrowers will lose their homes as a result. But I can’t begin to tell you how bad of an idea I think a foreclosure moratorium is in this case, on many different levels. Primarily, the move won’t help any borrowers actually keep their homes, but will just postpone the inevitable. It isn’t as if this is Hurricane Katrina or Hurricane Rita, where a foreclosure moratorium helped borrowers determine the condition of their properties, determine if they were going to stay or not and take time to work out terms with their insurers. There was a need to take time to collect information before moving ahead in these instances; there is no such need now. Economically, as well, a moratorium also doesn’t save the economy from any suffering at all, since someone has to foot the bill for the extra six months of subsidized living. The lobby has recently changed gears and targeted its message to lenders directly, asking them to voluntarily halt foreclosures; in the past, the calls for a moratorium were targeted at legislators. Most legislators balked at the idea, primarily because it would involve using taxpayer money to bail out troubled borrowers. Lenders, however, cannot voluntarily put a foreclosure on pause (even if they wanted to do so) — for one, they are bound by investor or insurer guidelines on when to initiate and when to complete a foreclosure; for another, most lenders are already seeing net interest margin compression and other factors squeeze out their profits and strain cash flows. Do you really think a lender like NovaStar could simply sit idly for six months while a swath of borrowers don’t make payments? While we’re at it, let’s be honest here: It’s not like two million troubled borrowers from sea to shining sea are somehow all the innocent victims here. I’ve read plenty of major media stories proffering the story of the poor borrower who had no idea that an adjustable rate mortgage might possibly adjust upward. Or the borrower who says that when they signed on for a reverse mortgage they didn’t know that it could leave them upside-down on the house. Or the borrower who said they had no idea at all what kind of mortgage they were getting. I’ve read the major media stories about how complex all of this is for the average borrower, and how mortgage hawks took advantage of that complexity. The mortgage process is a complex one, yes, but IMHO understanding the type of loan you’re getting isn’t complex at all. From a consumer’s standpoint, this doesn’t require alot of work to understand. It really doesn’t.