Foreclosures Needed For Housing Market Recovery

With Bank of America and GMAC Mortgage resuming foreclosures, the housing market may begin its slow recovery.

Both companies say their foreclosure procedures are in order and are restarting foreclosures. Other banks and their mortgage servicers could follow their example, and the housing market could begin working through its foreclosure backlog.

The main cause of the foreclosure controversy was reports that the wrong company personnel approved foreclosure documents and that they signed the mortgage documents without actually reading them all. Hopefully, the controversy will pass from the center of the media’s typically short attention span. Learn how to avoid foreclosure.

From reading newspaper accounts of the scandal, you’d think banks were foreclosing on borrowers still paying their mortgages. Or that that banks themselves were to blame for borrowers being laid off and failing to pay their mortgages.

The fact that the homeowners had defaulted on their mortgages, and had been in default for months or even years, was not in doubt. The homeowner profiled in New York Times article, who with her volunteer attorney was credited for sparking the foreclosure-gate scandal, has not made a mortgage payment in two years after losing her job.

Economists worry that delays in foreclosures could create a class of people essentially living for free. A man profiled by the Washington Post has remained in his Fort Myers, Fla., condo since 2007 despite not making a mortgage payment. He lost his job, then refinanced into an adjustable-rate mortgage that later reset to a higher rate.Learn about mortgage refinance programs. The man admitted he’s “an unsympathetic figure,” the article noted.

Not that the banks deserve sympathy either. They still must make sure they’ve satisfied all legalities before completing foreclosures. Banks are swamped with mortgage defaults, but that’s still not an excuse for failing to follow the proper procedures.

National foreclosure moratorium debated

Politicians on the campaign trail and political groups that some would call liberal pressed for a nationwide foreclosure moratorium, others, especially banking and financial trade groups, strenuously warned against that idea.

“It will destroy a housing recovery that is already crippled,” wrote Richard Peiser, a professor of real estate development at the Harvard Graduate School of Design, in the Boston Globe. “Worse, it will reward borrowers who game the system and stay in houses rent-free.”

A moratorium would hurt homeowners who will see housing prices fall when the foreclosure backlog is ultimately put back on the market, he added. It would also cause interest rates to rise as lenders cover their losses and protect themselves against future moratorium risk, and hurt banks that are stuck with non-paying mortgages on their books.

“A moratorium on foreclosures,” he said, “may make good press for politicians but it is terrible public policy.”

Source by Michael Kraus