Extraordinary times call for extraordinary measures. And this past weekend's one-two punch (the Federal Insurance Deposit Corp. taking over IndyMac Bank and Federal Reserve inserting financial IV tubes into Fannie Mae and Freddie Mac) can be considered extraordinary – and not in a good way!
If the current state of affairs is allowed to metastasize, the mortgage banking industry (and, by extension, the U.S. and global economies) will face a state of wreckage not seen since the grim days of the Great Depression.
In view of what is happening, I believe that someone (whether within the federal government or in the leadership ranks of the industry) needs to raise the possibility of putting a temporary national moratorium on foreclosures into place. This moratorium could last anywhere from six to 12 months, which would allow all responsible parties to work overtime in getting this mess settled.
How bad are things? According to RealtyTrac Inc., American foreclosure filings rose 53% in June from a year earlier, which sets an unwelcome new record. One in 501 U.S. households entered some stage of foreclosure during that month. Even worse, bank seizures rose 171%.
Rick Sharga, vice president of marketing for RealtyTrac, told Bloomberg News that he expects to see 1 million bank-owned properties by New Year's Eve, which would fall between between one-fourth and one-third of all U.S. home sales.
This situation obviously cannot go on. Lenders can ill afford to sink below repeated waves of foreclosed properties. Taxpayer funds cannot be pumped into collapsing financial giants. An expansion of the current crisis will make mortgage-backed securities the 2008 equivalent of Confederate money, circa 1866. And no further details are required to define the impact this will have on communities and families across the country.
If the federal government is willing to rush to the rescue of IndyMac, Fannie Mae and Freddie Mac (not to forget Bear Stearns, of course), then it can easily rush to the rescue of all parties trapped in the foreclosure miasma. It should be stated that a temporary moratorium does not mean the absolution of the borrowers who are in peril (mostly by their own doing, it should be stated).
Instead, the temporary moratorium will allow the industry to work with borrowers to come up with a fair solution for all parties involved.
The idea of a temporary moratorium will obviously hit opposition of both a passive and aggressive nature. The White House has focused its energies (and the taxpayers' money) on bailing out corporations and government-sponsored enterprises. To date, it has been silent on any suggestion of a temporary moratorium, as it may be seen as a bailout for borrowers. At the other end of Pennsylvania Avenue, Congress has wasted too much time in addressing the issues. Don't expect to see a rush to support a temporary moratorium from the House or Senate.
There is also a growing mini-industry of law firms, collection agencies, investors and fraudsters that are profiting on the foreclosure process. (In the avian world, they would be considered buzzards.) It is hard to imagine that they would happily embrace the notion of a temporary moratorium.
The industry, for its part, needs to consider this option seriously. If foreclosures were frozen for a specific time limit, a game plan could be enacted to bring about much-needed healing. It is incumbent upon the industry's leaders and trade associations to begin a discussion of this subject and to push for it should there be a consensus in its favor.
Time is not our ally, and the last thing we need is news of another lender getting rescued by the federal government. If the foreclosure process was halted for a while, then meaningful solutions could be put into place that would secure both the industry and the national economy. This subject needs to be addressed with all due speed.
– Phil Hall, editor, Secondary Marketing Executive.
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
