A National Moratorium On Foreclosures?


BLOG VIEW: Two years ago this week, presidential candidate Barack Obama called for a national 90-day moratorium on home foreclosures. ‘We need to give people the breathing room they need to get back on their feet,’ he said to his supporters in 2008.

Fast-forward to this week, and the then-presidential candidate is now the president. However, what sounded great on the campaign trail in 2008 is not being replayed in the Oval Office in 2010. President Obama's trademark eloquence must have been sent out for dry cleaning, since he has been conspicuously mum about the topic. Instead, senior adviser David Axelrod chimed in yesterday with a degree of agitated unease.

‘It is a serious problem,’ Axelord said. ‘I'm not sure about a national moratorium, because there are in fact valid foreclosures that probably should go forwardâ�¦Our hope is this moves rapidly and that this gets unwound very, very quickly.’

But in the absence of a presidential voice, there is still a great deal of political noise on the subject. A rising number of elected officials at state and federal levels are advocating a foreclosure moratorium. Rep. Gabrielle Giffords, D-Ariz., was perhaps the most cogent in this request.

‘Foreclosures are at an all-time high nationally, and Arizona has the third-highest foreclosure rate in the country,’ Giffords said. ‘Standing by and doing nothing is not an option when the men and women I represent face the prospect of losing the roof over their heads. A moratorium would help make sure that homeowners facing foreclosure will be treated fairly.’

The foreclosure moratorium effort is also permeating the state courts. Rep. Alan Grayson, D-Fla., asked the Florida Supreme Court to freeze foreclosures in the Sunshine State. However, he was informed that the court had no authority under the state constitution to impose such a freeze. Ray Brescia, an assistant professor of law at Albany Law School in Albany, N.Y., wrote in his Huffington Post column last week that an absence of state judiciary-imposed foreclosure freezes will open the door to chaos in the courts.

‘If state judicial systems as a whole will not halt foreclosures, individual judges have the power to bring about a shutdown of the system on their own,’ Brescia wrote. ‘Indeed, trial judges have nearly unfettered discretion to control their court calendars. What we need is a little judicial moxie to staunch the torrent of foreclosures. Judges can suspend cases indefinitely if they have any doubts about court filings, or fear borrowers have been the victims of discrimination or fraud. They can also give litigants a date to return to court that is months into the future: enough time for borrowers to consult with attorneys to review their pleadings and court documents.

‘In states where banks do not have to go through the courts to carry out their foreclosures,’ Brescia continued, ‘lawsuits, like those filed against Bank of America and Fremont Bank, could prevent banks from pursuing non-judicial foreclosures where they are tainted by fraud or discrimination.’

In Michigan, Virg Bernero, the Democratic candidate for governor, wants to bypass the courts and go straight to the banks – specifically, by withdrawing $1 billion in state money from JPMorgan Chase banking units as payback to their foreclosure efforts. The populist anger is rising elsewhere. In the past week, the AFL-CIO, the Center for Responsible Lending and several leading civil rights groups have also issued their own calls for a foreclosure moratorium.

And even the investor community has crashed the party. Chris Katopis, executive director of the Association of Mortgage Investors, told the Washington Post that securities trustees should ‘audit and review the resulting losses to hold servicers accountable for negligence in maintaining the assets of trusts.’

In all fairness, it should be noted that the major financial institutions at the center of the foreclosure controversy imposed voluntary freezes on their foreclosure activities – albeit in the 23 states where foreclosure proceedings require court action. But in the other 27 states and the District of Columbia, it is still foreclosure business as usual.

It will be very difficult for the mortgage banking industry to go about its servicing business as if nothing unusual happened while a growing clamor by politicians, labor unions, civil rights groups and media commentators demanding foreclosure moratoriums gets louder. And the timing is even more of a headache: Except for the Texas attorney general, every public figure who was early in calling for a moratorium is a Democrat, and their embattled party could easily use this controversy to gain traction in the run up to Election Day. The leading Republican on the Senate Banking Committee, Sen. Richard Shelby, only joined the fracas while it was already in progress with his Oct. 6 request for investigative intervention by regulators – and his tardiness was noted by his political critics.

I realize that very few people in the industry agree with the idea of an extended foreclosure moratorium. However, extenuating circumstances might suggest that a proactive and extended moratorium should be considered. Bank of America took that leap on Friday, when it stated it would halt foreclosures in all 50 states.

Personally, I think it would be in the industry's best interest if other servicing entities followed Bank of America's lead. This will show that the industry is taking the lead in correcting any perceived problems relating to the foreclosure controversy. A proactive response to the problem is the best way to fix whatever is broken.

When you consider that Sen. Chris Dodd, D-Conn., has already called for a Nov. 16 hearing by the Senate Banking Committee on the subject, I don't think that the industry has too much time to dilly-dally in making its mind up on how to proceed. If anything, self-policing is always more attractive (and less disruptive) than politically mandated controls.

– Phil Hall, editor, Secondary Marketing Executive

(Please address all comments regarding this opinion column to hallp@sme-online.com.)

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