Commentary: Foreclosure moratorium would be a mistake

Glenn Garvin of The Miami Herald (C.W. Griffin/Miami Herald/MCT)
Glenn Garvin of The Miami Herald (C.W. Griffin/Miami Herald/MCT) MCT

The prospect of being hanged, they say, concentrates the mind wonderfully. So perhaps the impending midterm electoral massacre of Democrats has sharpened the Obama administration's thinking. I cannot otherwise figure out how a White House that never met a bailout it didn't like could have so sensibly denounced the idea of a moratorium on mortgage foreclosures.

``A national moratorium would be very damaging to exactly the kind of people we're trying to protect,'' said Treasury Secretary Tim Geithner in pooh-poohing a moratorium, ``because the consequence of that would be in neighborhoods that have been most affected by the foreclosure crisis, where you see lots of houses on the block empty, unoccupied. . . . Those communities will be living longer with houses unoccupied, with more pressure on their house price with the people still in their houses.''

Hearing somebody from the White House speaking intelligently about economics naturally raises suspicions that space aliens slipped a pod under the president's bed while he slept. And especially so in this case, since the call for a moratorium doubtless appealed to Obama's primal instinct for giving away other people's money.

The outcry for a moratorium has been triggered by the revelation that, as the collapse of the housing market generates record numbers of foreclosures, officials have been rubber-stamping the documents rather than actually reading them. Depositions taken by lawyers helping their clients fight foreclosure have admittedly not painted a very pretty picture of the process.

One banker admitted to signing 10,000 foreclosure documents a month, checking nothing more than the dollar amounts. A supervisor at a loan-service company in Houston admitted she had no idea what the terms ``lien'' or ``promissory note'' meant, even though they appeared on papers she signed every day. A Bosnian refugee working at Washington Mutual in Jacksonville barely spoke English, but signed 30 to 40 affidavits a day.

Gleeful attorneys gave the bankers the tabloid-friendly label ``robo-signers.'' Newspapers reveled in the stories with headlines like FORECLOSE NOW, ASK QUESTIONS LATER. Politicians were quick to stand up for beleaguered homeowners being pushed from their houses though error or greed. ``Give Missourians some time to get back on their feet and negotiate in good faith with their lenders,'' demanded Kansas City Mayor Mark Funkhouser.

About the only thing missing from all this were actual victims. For all their frothing fulmination, neither the lawyers nor politicians nor journalists have been able to come up with any credible stories of people losing their homes despite faithfully paying their mortgages. They couldn't even find stories about people losing their homes despite being just a couple of payments behind.

That's because there aren't any. The average time required for a lender to foreclose on a delinquent mortgage these days is more than 14 months and growing by the day. The idea that the Mortgage Police could kick in your door without warning and fling you out into the street because somebody filed the wrong form is ludicrous.

And while it may sound politically incorrect and even cruel to say it, so is the idea that delinquent homeowners on the verge of foreclosure just need ``some time to get back on their feet.'' That was the idea behind the Obama administration's Home Affordable Modification Plan, launched 20 months ago with great fanfare, that encouraged bankers to modify loans of homeowners who were badly behind on their payments. But half have already been kicked out of the program for going hopelessly in the hole again.

The unpalatable fact is that most homeowners facing foreclosure got mortgages they couldn't afford during the easy-money days. Others have been blindsided by the layoffs and wage reductions rippling through the economy the past two years. Either way, putting off their foreclosures is only postponing the inevitable.

And if it's done, it will be at a high cost to us all. Not only will a moratorium on foreclosures pull down the prices of surrounding homes, as Geithner says, but it will keep the housing market in a state of uncertainty that keeps sales low.

``The housing market is trying to clear,'' says Mark G. Dotzour, the chief economist at the Real Estate Center at Texas A&M University. ``Foreclosure is the final wave in the healing process. And there is a healing process. You can see it in Southern California, where the volume of sales is up and prices are firming. That's what the whole rest of the country is hoping for. A moratorium will destroy that. It will be a national tragedy.'' One so great that even the economic illiterates of the Obama administration understand.

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