Posted on 10/13/2010 6:44:16 AM PDT by WebFocus
Democrats are calling for a nationwide end to mortgage foreclosures. It’s hard to imagine a more shortsighted policy under our current economic circumstances.
The weekend’s newspapers were full of stories about Democrats—including the embattled Senate Majority Leader Harry Reid (D-Nevada) and Deputy Majority Whip Rep. Debbie Wasserman Schultz (D-Florida)—calling for a nationwide end to mortgage foreclosures. It is hard to imagine a more shortsighted policy under our current economic circumstances. For a party that claims it wants to put Americans back to work, the Democrats are instead advertising their willingness to sacrifice jobs and economic recovery for salvation in November’s election.
Without question, disclosures about bank employees signing affidavits without reading them are troubling, but calling these technical deficiencies in the foreclosure process “frauds on the courts” and a reason to halt all foreclosures is a reaction wildly out of proportion to the seriousness of the fault and—if it succeeds—potentially disastrous for the economy.
Clearly, people who are in danger of foreclosure will be helped by a moratorium, but who will be hurt? The first victims will be the nation’s banks—not only the large ones, but also the small ones, the local banks that kept these mortgages on their balance sheets. If they are not going to receive any revenue from these mortgages, and they cannot foreclose, they will be weakened. If that happens, they cannot continue to make loans to small businesses, to consumers, or to those people who would like to take advantage of today’s low interest rates to buy a home, whether or not it is a foreclosed property. So the foreclosure moratorium will further weaken local economies and produce yet more unemployment.
Another victim of the moratorium will be pensioners. Pension funds for public and private employees are major holders of mortgages and mortgage-backed securities. If people are not paying principal and interest on their mortgages, these funds will not receive the revenues they have been counting on to meet their pension obligations. They will be required to borrow to make the payments required, and the cost of those borrowings will weaken their long-term ability to pay.
Yet a third set of victims will be Fannie Mae and Freddie Mac. These two government-sponsored entities hold or have guaranteed well over $5 trillion in mortgages and mortgage-backed securities. Because they became insolvent in 2008, they are currently under the control of the government, and have thus far received about $150 billion in taxpayer funds to keep them afloat. If they do not receive the principal and interest on the mortgages they hold, the taxpayers’ costs for keeping them financially solvent will increase, adding directly to the enormous deficit that is already a problem for the United States. So the moratorium is another direct burden on the taxpayers.
The housing industry, which amounts to almost one-sixth of the U.S. economy, has always been the economic sector that led the United States out of recessions. This time, because of the huge buildup of weak and high-risk mortgages in the housing bubble that deflated in 2007, the housing market has been much slower to recover than in the past. This is because the inventory of unsold homes remains high, and potential buyers know that prices still have further to fall. As long as there are large numbers of unforeclosed homes—homeowners that are neither paying principal or interest on mortgages nor making their homes available for sale to buyers who will make these payments—the housing market will continue to languish, extending the recession indefinitely.
Voters who are paying their mortgages, who are looking for jobs and can’t find them, who are taxpayers hoping to reduce their burdens as well as the U.S. deficit, and all Americans who are worried about the weakness of the economic recovery, should recognize that the politicians who are calling for a nationwide moratorium on foreclosures are not their friends.
--- Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.
There is a huge difference between admitting that the banks need to clean up their paperwork so it can be supported in bankruptcy court, and claiming they are trying to “...steal property from persons who either do not owe any money on it or who are current on their loans.”
The folks getting hit by foreclosures OWE money. They are NOT current on their loans. Where the banks have screwed up is in using electronic tracking where some states require paper. But the owners are not folks who own their own homes, and suddenly have a bank pretending they owe money...
Anyone who buys a house without insuring the title is too stupid for me to care about...
Unless they pay cash, or go with some ‘owner financing’ scheme, it’s a requirement.
Other than that, I’d agree that anyone who blindly pays cash for real estate these days, is indeed too stupid to care about.
I agree with you.
The problem is that the banks holding the mortgages have a vested interest in letting the properties slowly trickle onto the market.
It's the only way they can avoid revealing how over-valued their mortgage portfolio is, and how insolvent they are.
The consequences of housing finally reaching a market clearing price would be far worse for the banks than allowing the deadbeats to stay in the homes a while longer.
So when Harry Reid calls for a national foreclosure, I suspect the banking industry will reply... "Oh Lawd, Senatuh, don' throw us in that briar patch!!
As a paralegal, you probably understand the problem here better than any of us. As I understand it, the large banks (Chase, Wells Fargo, BofA, et al) set up foreclosure shops to try and clear as many of these defaulted mortgages as possible. In the States that require some sort of judicial review, they tried to get by with hiring people with little or no experience to process paper that rightfully ought to be prepared, reviewed and submitted by a paralegal at a minimum. In some States an attorney could be required depending how complex the foreclosure is.
I’m not making excuses for anyone here. Process is process and every State is different. But at the same time Fannie Mae and Freddie Mac have been pushing the banks to foreclose as quickly as possible.
This is also a good distraction 2 weeks before the election, to keep people from talking about HAMP mortgage modifications that the Treasury has been bonusing Fannie Mae employees on. What has been happening is that people apply for a temporary 90 day mortgage modification from Fannie, they pay a reduced payment for three months, then the Bank lets them know they really didn’t qualify, are now in default, and owe back interest and penalties. That is potentially a much larger scandal than this one, and would make one hell of a statement about this Regime, if the media ever gets around to reporting on it.
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