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.
I'm still wondering how long it will be before repo men bang down the wrong door and get killed while doing this (not that I would be against such a thing of course, people have a right to protect their property).
This sums it up nicely! Once again, the people that are following the rules, the laws and achieving are the ones that will be hurt. This moratorium invites deadbeats.
Not to diminish the documentation problem, but a tiny, tiny portion of those being foreclosed upon are actually paying their mortgages.
Fact is these people are NOT paying their mortgages (aside from a few high-profile exceptions that I’d agree with you on about them getting killed about).
The quesiton isn’t whether the homeowners shouldn’t be foreclosed upon, rather, it’s WHOM should be doing the foreclosing.
A lot of these”deadbeats”shouldn’t have loans to begin with!Now that they are being foreclosed,a lot of these houses could sell at these depressed prices.The market would “right”itself,but(once again)the government is interfering with”The Market”!!!!!
These people who took out loans and can't pay them get out.
I know I can't afford a multi- Million dollar home, no matter what kind of loan they offer. Get out of you house so this country can recover.
It is likewise inexcusable that anyone should be allowed to borrow hundreds of thousands of dollars to buy a house and then refuse to pay it back and expect to live in that house indefinitely for free.
I agree that the guilty and incompetent should be prosecuted.
Having said that, WE ALL KNOW THAT MANY PROPERTIES NEED TO BE FORECLOSED !
To make a sweeping declaration saying NO PROPERTY WILL BE FORECLOSE FROM HERE-ON will lead to disaster.
It would be like Obama banning off shore drilling because of the one disaster BP made and then punishing the rest of the drillers who made sure they followed safety rules.
Think of how many unemployed people that will create.
BTW, Obama relented and rescinded the offshore drilling ban yesterday.
“Bank Holidays” (and a moratorium on foreclosures could be seen as such) are usually a last desperate measure to stave off complete economic collapse.....
I don’t think we’re quite there, yet - but the fact that it’s being ‘trial-ballooned’ is a bit scary.....
>> people have a right to protect their property
Doesn’t that right extend to lenders too? If not, why not?
Put another way: a government that regulates away the property rights of lenders can JUST AS EASILY regulate away the property rights of homeowners and landowners.
“It is inexcusable for any private entity to try and steal property from persons who either do not owe any money on it or who are current on their loans.”
Of course.
And of course that’s not the case.
What we’re seeing is people searching for technicalities to hold onto property on which they are in default.
Plain and simple.
Many here applaud that (those “evil” banks and all).
Yet when lawyers use technicalities against any of their favorite interests, they cry that something needs to be done to rein in the lawyers.
Taked your pick.
I just hope people look at their own records.
My sister and her husband are upper middle class 6 figure earners. Not exactly deadbeats by any means. My sis checked out their mortgage with the registrar of deeds and found that in the 5 years they’ve been paying on there home, its gone through 9 different servicers that she and her husband were totally unaware of.
On the other hand, the ACORN crowd is licking their chops. I’m also concerned about how our government will behave. Its a perfect opportunity for them to take over the properties and begin “diversifying” who neighborhoods.
So a bank throws away the documentation that proves that they own the house because they want to lie about the documentation to the Bond buyers they are selling the mortgage to...(which includes us, mutual funds, pensions, etc.)
then later on they need to foreclose? Screw the banks, let me get out the worlds smallest violin. The bondholders need to prosecute the banks for fraud.
And if you want to foreclose on me? Prove you own the note, then we’ll talk.
And who is saying it doesn't? Lenders have a right to foreclose and seize any property in default but we're seeing too many lenders use shady legal practices which too often result in people who have nothing to do with the property being foreclosed upon being screwed.
Banks should not be allowed to use the "clerical error" defense when it comes to defending attempts to seize the wrong property in a foreclosure process. If any common crook tried breaking into someone's house and then waved a piece of paper signed by someone that states it was OK to do this, I don't think the police or the courts would buy that as a defense. Why shouldn't banks be expected to obey the law when it comes to foreclosures?
It is very troubling that there is so much fraud taking place on foreclosure paperwork, and the problem of deciding who has clean title has to be addressed.
That said, I have not heard of one single case so far of anyone who was fraudulently foreclosed upon. Neither has there been a single report that I have heard of a person being mistakenly evicted from their home due to a fraudulent foreclosure.
There have been incidents of contractors hired by banks to secure a property, showing up at the wrong address to change the locks or disconnecting utilities, but that is an entirely different matter that is not, repeat, NOT related to the issue at hand.
This crisis in the short term is going to hurt the banks and help anyone that is going through foreclosure and still living in the house (about half of existing in-process foreclosures). In the long term, depending on how long this takes to sort out, the housing market will continue to decline and when all of these properties hit the markets all at once, home prices will sag even further. That means people who want to sell their houses probably won’t be able to, or at least will get far less for it. It also means that people who are underwater now will be even further underwater as home prices drop further.
A lot of the hype the media is throwing around for the Democrats misses the mark on what the impacts of this defacto freeze are really going to be. The problem is not that these foreclosures should not have taken place, it is in the way the paperwork is being handled.
No matter what, the best possible thing to do is get these foreclosures finished as quickly as possible and get the properties back on the market. That is being delayed even further, and therein lies the real problem here.
Foreclosures may cause a "Gain" or "Loss" which has tax conseqences. It is very complicated and will certainly confuse the unemployed downtrodden with economic complexities which certainly hurt.
A gain would mean extra taxes for these foreclosured citizens!
The IRS is still updating the tax code and guess what?
Bend Over!
>> And who is saying it doesn’t?
By disallowing all foreclosures, the government is saying lenders have no property rights. Or how did you want to spin it?
Actually it is. Go look for yourself and you will see that there are rising numbers of property seizures being attempted on people who are either current with their mortgages or who do not owe money on their houses.
What we’re seeing is people searching for technicalities to hold onto property on which they are in default.
If a bank screws up its documentation process and cannot legally seize a property as a result then that is the bank's problem. This version of "the dog ate my homework" excuse did not work in school and it certainly should not be able to work in the real world... especially when those of us who have been on the receiving end of a bank mistake have to spend our time and efforts digging up proof to show that it was indeed the bank that screwed things up.
Yet when lawyers use technicalities against any of their favorite interests, they cry that something needs to be done to rein in the lawyers.
Agreed. But if the law provides for these technicalities and they are not respected by the litigants, then they have no one to blame but themselves for things not going in their favor.
America used to be a nation of makers. Then, somehow, a new class developed - takers. People who believe that they were entitled to everything the makers produced without doing any work.
I have attempted to chase this trend backwards and have hit an apparent starting point - LBJ's war on poverty. Some of the political terms surrounding this “war” are very interesting. Everyone above the average was the most illuminating one.
Final thought - since we have lost the “war on poverty” can we now surrender and stop of of its losing programs?
This is apparently a high hurdle for some companies to get over, given the intricacies of the mortgage securitization process... so says Karl Denninger.
In any event, there are very specific and straightforward laws that govern the foreclosure process. All we have to do is follow them.
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