Foreclosure Moratorium – Prolonging the Inevitable
Guest article by Marc Tow, Real Estate and Bankruptcy Attorney
Four major real estate lenders have recently admitted to possible defects in their loan & foreclosure review procedures. These four have proclaimed a foreclosure moratorium: Bank of America, JP Morgan Chase, Ally Financials’ GMAC Mortgage division and PNC Financial. Others will follow suit. Now politicians are now calling for a nationwide moratorium and the finger pointing has begun. Can the housing market withstand another blow? The news of partial foreclosure moratoriums has already caused the short-sale market to come to a halt. While putting foreclosures on hold in the short term may seem like a good idea, it could lead to additional new and improved versions of recently enacted regulations resulting in what amounts to the lawyers full-employment act.
90 day moratorium – Short term impact.
It may appear that a foreclosure moratorium done for a short period of time could be a good thing. It would slow the process of dumping thousands of homes onto an already flooded market. The time may help firm up and stabilize home prices. It will give the lenders an opportunity to review their loan documentation and foreclosure procedures for compliance and to modify same. It would give lenders time to establish foreclosure procedures that comply with customary regulations and applicable laws. It would also give time for overwhelmed loan servicers to catch up in their loan modification departments so that those who qualify could stay in their homes. However, this interim period may also provide bellowing politicians facing interim elections media time to lace on additional regulations and feed truck loads of hungry lawyers.
180 day (half a year!) moratorium – Intermediate impact.
An extended moratorium may or may not provide extra support to the fragile home market. Additional time could breed uncertainty in home buyers who are waiting for another wave of foreclosures to hit the market with the possible consequence of downward pressure creating a new bottom of pricing. Further, it could just be delaying the inevitable by giving many delinquent homeowners a free ride. It is important to distinguish between borrowers who involuntarily default due to no cause of their own (such as from a loss of employment), versus those who could be classified as predatory borrowers because of their intent to exploit the lenders with malice and premeditation. This would effectively reward these predatory borrowers by transferring the responsibility back to the lender all under the disguise of fairness. You can absolutely be assured that while politicians and lawyers are screaming to transfer wealth from the banks to the defaulting borrowers that the banks will return to the door steps of Washington for another government bail-out. This fiasco will result in tax payers subsidizing the lifestyles of predatory borrowers.
Greater than 180 days – Longer term impact.
-Take cover from the massive fall-out that may result if this moratorium lasts for an extended period of time. The implications are broad including the viability of real estate markets, locally, regionally and nationally.
-The longer it takes to absorb excess inventory, whether directly owned or as shadow inventory, the more likely we are to submit to another round of recessionary forces.
-Investors/Lenders will curtail their desire to invest in real estate related securities because of the inability to perfect their security interest and/or to regain their capital.
-Defaulted borrowers by the millions will stop paying altogether if they see there is no consequence.
-Loans from private capital sources could be greatly reduced or cease to exist all together. Government sponsored entities could replace for-profit enterprises as happened in the automotive industry.
-Massive amounts of regulations may result in lawsuits, lawsuits, lawsuits.
Just imagine waking up one day and lenders refuse to lend because of government regulation, appraisers can’t appraise because of lack of comparables, buyers refuse to buy because they have no jobs or unpredictable income, contractors can’t work because nobody is improving their new home, retailers have no sales because no one is buying furnishings for their new home, title insurers refuse to insure as millions of defaulting borrowers enjoy their residential occupancy for free. This could be the future if we as Americans don’t stand up. The most viable and rational path out of this mess is for the lenders to repair their foreclosure policies and procedures and allow the economic system to repair itself. Can our government bail us out forever? The resulting actions from all stakeholders will require an effective strategy, pain, and time!
If we don’t solve the foreclosure process ourselves, there will be no solution. I’m not a politician, I’m a lawyer in the trenches. I want us all to win. If we don’t, what will be the new normal?
Visit Marc’s website at http://www.towlawbankruptcy.com for more information.
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