No National Foreclosure Moratorium Needed to Move Housing Market from Crisis to Calm

When I accepted the invitation to write a guest column for RealtyTrac in mid-summer, I fully expected to be writing about the continuation of months of improvement in the foreclosure environment and how the Administration was preparing for the next phase of our assault on the greatest crisis the U.S. housing market has seen since the Great Depression.

The experiences of the past few months have borne out this expectation, and we have seen real progress in the housing market.  Foreclosure starts are down by nearly 30 percent from the peaks of a year ago.  In the last 18 months, more than 3.3 million families have received restructured mortgages with more affordable monthly payments, which is more than twice as many foreclosures that have been completed during that time.  And a steady stream of foreclosure completions means that the backlog of distressed properties — the source of a gloomy overhang over housing markets across the nation — is starting to settle out.

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Unfortunately, the recent revelations about foreclosure processing — that some banks may be repossessing homes of families improperly — have cast new clouds over this optimistic and hopeful landscape, and these warrant commentary.  The Administration clearly understands the threat this represents, both to general recovery efforts and, more importantly, to homeowners across the country who now fear that banks and servicers might be taking shortcuts that cause them to lose their homes.  That is why the Obama Administration is marshalling the resources of a broad coalition of law enforcement, investigatory and regulatory agencies to examine the issue and take appropriate action if wrongdoing is found. 

The importance of this is obvious — no one should lose their home as a result of a bank mistake. Given the problems that have already been found and admitted to by some servicers, the Obama Administration fully supports the voluntary moratoria that are already in place and others should they be deemed necessary. 

While voluntary moratoria have been established in many quarters, some have argued for the need to go further and impose a national moratorium to halt all foreclosures by every servicer in every state.  I do not favor this as a pre-emptive action, as it would likely do more harm than good.  Vacant and abandoned homes destroy the value of neighboring properties like almost nothing else, with their negative impacts being more than three times greater than the impacts of occupied homes just entering the foreclosure process.  Halting foreclosures would halt the resolution of these properties, hurting both the neighbors that must endure the continuing negative effects of a foreclosure sign near their homes as well as those who see these properties as opportunities to become homeowners, some for the first time.  And with foreclosed homes making up 25 percent of all home sales in some markets, a full scale moratorium would put a chill on precisely those housing markets that need these distressed properties to be sold and renovated in order to return to stable footing. 

So, where does this leave us? The recently passed Dodd-Frank legislation to reform Wall Street and banking represents a significant improvement to our banking and housing finance systems, and will help enhance stability and market efficiency.

Another way that stability and market efficiency are achieved is through the availability of high quality data and information about the markets themselves.  As you know, the Obama Administration has made data availability and transparency high priorities, with the belief that people make better decisions and judgments when they are armed with good data.   Through this housing crisis, RealtyTrac and other companies like it have been important sources of information about the incidence and prevalence of foreclosures, and have helped spark many conversations about foreclosures and how to heal the market. 

This article is excerpted from the November 2010 issue of RealtyTrac’s award-winning newsletter, the Foreclosure News Report. Sign up for a 7-day free trial with RealtyTrac and we’ll mail you a free issue of the newsletter. Simply opt in to receive your free issue at the end of the registration process.

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