Monday, October 13, 2008
Obama calls for a moratorium on mortgage foreclosures
Barack Obama is calling for a 90-day moratorium on mortgage foreclosures along with a package of other economic stimuli. I do not know whether it is a good or bad idea -- I can imagine arguments in both directions -- but I do wonder at the timing. If it were enacted quickly -- in the next couple of weeks -- the moratorium would expire right around inauguration day. A huge flood of pent-up foreclosure notices and the related hysterical press coverage seems like a bad way to begin a new presidency.
11 Comments:
By 
Charlottesvillain, at
Mon Oct 13, 04:26:00 PM:
This would just guarantee that the mortgage/housing crisis will last longer and be more expensive than it otherwise would be. While briefly beneficial to individual families who might gain a few extra months in the residence, it would be terrible for banks, investors, and mortgage finance in general. Keep in mind that the gyrations of the Treasury and the Fed have been to save the banking system, keep investors solvent, and eventually restore mortgage finance to a functional status. This moratorium would be counterproductive on all three counts. Ergo, I expect Pelosi and Reid to weigh in fully supporting the measure.
By Escort81, at
Mon Oct 13, 04:56:00 PM:
I agree with 'Villain, counterproductive on three counts, based upon how Obama described it.
I think perhaps what Obama is trying to say (not unlike Hillary earlier) is that he does not want to see families kicked out of their houses because they are behind on payments. Since at least one county Sheriff (in Cook County, in Obama's home state) has stated that he will not engage in that practice (which would otherwise seem to be a basic part of his job description), a 90 day stay on kicking people to the curb might be accomplished, while at the same time allowing lenders to take title to the property or otherwise commence acceleration of the loan and prepare the property for sale. During that time, the residents could make alternative plans. If a mechanism to do a McCain-type "reset" or haircut was to be used (allowing defaulted borrowers to re-do a loan at a lower FMV of the property and a less leveraged loan to value ratio), maybe that 90 day period could be used to explore that alternative.
Anything that uses those three months to help -- even a little bit -- the market to clear can't be all bad, especially if the lender can continue to perfect his rights and the people in the house don't get streeted.
About 8 years ago, there was a joke going around various techonology and other companies that had seen a rise and fall in stock price. A young, attractive blonde gets into the elevator with Mr. Jones, the SVP of a company in the building. She says with a purr, "oh, I love your company and your products, I'll do anything for you." Mr. Jones replies, "can you re-price my options?"
Basically, what we have here is the same joke, except the punchline is "can you restructure my mortgage?"
But a complete 90 day standstill sounds like a bad idea.
By TigerHawk, at
Mon Oct 13, 05:00:00 PM:
I thought of that, but I also thought of a counterargument: Mortgage servicers may be caught in something of a dilemma. If everybody forecloses at once you get a huge glut of houses on the market at the same time. That then drives down home values further and perhaps artificially, which could trigger more foreclosures (because discouraged owners in non-recourse states send in the "jingle mail"). But, even knowing that, no servicer wants to fail to foreclose for fear that the market gets crushed anyway. In one sense, it is a "commons" problem -- each mortgagee is better off if he forecloses fast, but all mortgagees are better off if the liquidation is a little more attenuated. Is it possible that some intervention would resolve the commons problem?
By 
, at
Mon Oct 13, 05:40:00 PM:
Just to clarify about the sheriff in Cook County: from the article it is clear that the sheriff is only beginning to act in accordance with laws and regulations that he was previously ignoring.
"Dart said that from now on, banks will have to present his office with a court affidavit that proves the home's occupant is either the owner or has been properly notified of the foreclosure proceedings.
Illinois law requires that renters be notified that their residence is in foreclosure and they will be evicted in 120 days, but Dart indicated that the law has been routinely ignored."
By Charlottesvillain, at
Mon Oct 13, 05:48:00 PM:
TH,
What you say might make sense if you think the number of mortgage defaults is static, and that there is just a giant backlog to work through. Unfortunately, we know there are tens of billions of pay option arms yet to recast in the next 18 months, so a whole new wave of defaults is likely.
For a servicer and mortgage holder, a defaulted loan is a bleeding wound. Not only is there carrying cost on the funding (which requires servicer advances as long as deemed ultimately recoverable) but they need to place insurance on the property, secure it from vandals (who these days may be as likely to be the residents as not), keep the lawn mowed, etc. Its one thing to try to restructure the loan if there is a chance of bringing a borrower close to current. But if the loan is underwater and the borrower is in default, the best thing you can do is get the house sold ASAP.
I get the downward spiral thing, but really the only way to get a floor on housing prices is to clear the market, and delaying that process will keep prices in decline longer, IMHO.
By Purple Avenger, at
Mon Oct 13, 06:30:00 PM:
If someone can't pay their mortgage, and the people holding the bad paper can't foreclose and resell it, then who is supposed to take the punishment when the local property taxes come due?
If the paper holders have to shell out for a big tax bill as well as getting burned on the bad paper, then their situation becomes even more dire.
By Kurt, at
Mon Oct 13, 06:49:00 PM:
I think he got this brilliant (cough, cough) idea from the Hillary! campaign. When she floated the idea I thought it was a bad one, but I suspected in her case it was more pandering than an actual, meaningful proposal. In BO's case, it is not only pandering, but he probably takes it seriously. 1970s here we come.
By , at
Mon Oct 13, 07:51:00 PM:
Why not just pass a law forgiving the mortgage completely? (ok, I'm being sarcastic but only a little)
Just once I'd like to hear either candidate praise those of us who have been responsible in our personal finances. Those people who are behind on their payments? Three months isn't going to do jack. They've got too much house (and other debt) for their income, can't refi or sell their way out of it as they once foolishly thought they'd be able to do so.
Unless Obama thinks the housing market is going to zoom up again dramatically in three months, this is just more hoo-hah. It solves nothing and as others have already noted simply exacerbates the problem.
By , at
Mon Oct 13, 09:59:00 PM:
Yeah, the problem for Obama is that his supporters actually believe he really means what he says. Maybe he does, but let's say a 90 day moratorium goes into place: with Pelosi and Her Merry Crew of Brigands in charge on the Hill, who's to say this so-called moratorium won't turn into a Frankenstein's monster and morph into something completely different from what was intended?
Gee, that's never happened before, has it? (*rolls eyes*)
90 days? Psshaw! Expect immediate leftwing pressure on a "President Obama" and Donk congressmen to expeditiously extend the moratorium indefinitely and damn the hatred, heartbreak, and discontent sure to follow. Would Obama buck his own party and support eventual foreclosure and eviction on individuals and families? The answer is easy: not a f***ing chance in hell. Barack the First hasn't even been elected yet, but he's already got his eye on 2012 and he knows his second-term prospects would be T.O.A.S.T. if he did this.
Obama thinks he's being cute with this little moratorium proposal, but His Majesty seems wholly oblivious to the possibility that people may end up getting hurt--financially or even physically--because of it. All the more reason McCain/Palin must win next month.
By , at
Mon Oct 13, 10:58:00 PM:
I'm not a financial genius, but this would seem to be a classic example of "slippery slope." First a moratorium on mortgages. "But wait, in order to get to my job (or to job interviews) to pay my mortgage, I need my car." Next, a moratorium on car repossessions. "And if I didn't have that pesky child support to pay, I could make my mortgage and car payments, and maybe even buy Christmas presents this year." 90-day moratorium on child-support? Hell, how about a moratorium on irresponsible people being in debt altogether?
By , at
Tue Oct 14, 10:10:00 AM:
It actually might be a great way to start a presidency if you are going to cite a grave emergency as a cause demanding a large expansion of presidential powers. Not that Obama would find the current presidential powers insufficient or lacking in proper grandeur. No, couldn't be that.
