Pro & Con: Does the U.S. need a national moratorium on foreclosures?

In recent weeks, several banks including JPMorgan Chase and GMAC temporarily halted processing home foreclosures in certain states, and Bank of America stopped foreclosure sales nationally while it reviewed questionable transactions; the bank said this week it would now resume them. These institutions halted foreclosures because their records are such a mess, and they may have foreclosed on people who should still be in their homes. These banks, along with the rest of the industry, should declare a nationwide moratorium on home foreclosures.

There is growing evidence of bank abuses in the foreclosure process. State court judges across the country have dismissed improperly filed foreclosures, and state attorneys general are investigating home foreclosure practices.

In glaring examples seen in many foreclosure cases, “robo-signer” bank executives rushed through thousands of home foreclosures per month without properly reviewing each individual file. In other cases, banks didn’t properly notarize documents to prove who has legal title to the homes.

In fact, banks were so eager to process foreclosures, there is a case in Florida courts of two banks trying to foreclose on the same home mortgage. Another bank foreclosed on a home that had been purchased for cash without a mortgage.

These foreclosure tactics have long-term implications. If a bank forecloses without proper documentation, the home may become un-sellable due to the cloud over its title.

A nationwide moratorium on foreclosures is also good for our economic recovery. By halting the foreclosure process, we can save communities from blight — which will, in turn, help the local tax base of towns and cities that are already suffering from budget shortfalls.

And a moratorium would give banks and homeowners the opportunity to pursue alternatives to foreclosure such as modifying homeowners’ mortgages to more affordable payments. Banks should reduce mortgage principals to reflect the decline in home prices — which have led to homes being worth less than the amount borrowed.

Many banks have already made some progress to help prevent foreclosures. Wells Fargo has announced a principal reduction plan for homeowners who received certain risky loans. But that’s not enough.

Too many families are out of work due to the reckless greed of Wall Street — and because of the risky mortgage lending practices by many of these same banks.

Unemployment is the leading cause of foreclosures, and millions of homeowners have lost their jobs because of the financial crisis and economic recession. It’s a vicious cycle.

The same banks that caused the financial crisis must now do the right thing by fixing the mess they created and stop home foreclosures.

Arlene Holt Baker is executive vice president of the AFL-CIO.

NO: A moratorium won’t fix the underlying problem of owners who can’t pay.

By Joe Brannen

It is completely unnecessary and damaging to prospects for economic recovery to enact a nationwide moratorium on residential foreclosures.

The questions about the paperwork supporting a foreclosure need to be answered and several of the major lenders and servicers are already reviewing their processes and are committed to ensuring the process is handled appropriately.

The final steps of proper documentation must be correct, but a national moratorium would not address the root economic problem or magically bring homeowners who are seriously behind on payments current.

When a foreclosure gets to the stage when the legal and paperwork issues in question come up, most borrowers are already many months behind on their payments.

The foreclosure process in Georgia does not happen overnight. Most lenders don’t consider a loan in default or begin the foreclosure process until it is 90 days past due. And even then, the process is not immediate.

In 2007, for example, the average Georgia borrower in default with Freddie Mac-invested loans had stayed on the property for eight months without making a mortgage payment.

We haven’t seen more recent averages for Georgia, but it is reasonable to assume that timeframe has not decreased.

In Florida, where a foreclosure must go before a judge before proceeding, we understand the average is creeping up to almost two full years.

Georgia’s mortgage lenders and servicers are trying to keep struggling borrowers in their homes if at all possible.

According to the Hope Now Alliance of the nation’s largest lenders, from April 2009 through May 2010, more than 118,815 Georgians avoided foreclosure, an average of more than 8,400 a month.

During that time, 49,316 Georgia homeowners received repayment plans and 69,499 received loan modifications. With those totals, we estimate that more than 7 percent of Georgia mortgages have been voluntarily modified by lenders or through government programs since April 2009.

Unfortunately, for those who are way behind on their payments and for whom a modification is not an option, foreclosure is the last and only option.

At that point, it is best for everyone to have an efficient process for foreclosing so the home can be sold to a new homeowner quickly.

To illustrate just how destabilizing a national moratorium can be, it is worth noting that many of the properties in serious mortgage default are already abandoned, as many as one in four according to one major lender’s records.

It is certainly not in the best interest of the communities where those homes are for any further delay in their legal foreclosure.

The prudent pause in foreclosures already self-imposed by some lenders should not be turned into a government-mandated stoppage of all foreclosure activity.

Such a moratorium would only delay the inevitable and stall what little recovery we’re seeing in the housing markets and further stress neighborhoods, consumers, and the economy.

Joe Brannen is president and CEO of the Georgia Bankers Association.