Mortgage Moratoriums Delays Foreclosures but Unable to Prevent Them
President-elect Barack Obama opposed a proposal for a moratorium on foreclosure properties that was previously put forward by Sen. Hillary Rodham Clinton several months ago, when the economic crisis has started to pick up. But with the current deterioration on the mortgage crisis, and foreclosure rates across the country continues with its upswing, a temporary freeze on foreclosures could provide some breathing room for beleaguered homeowners.
These calls for a moratorium on foreclosures are being supported by senators, attorney generals, and several government officials including California governor Arnold Schwarzenegger and even President-elect Obama himself. California has been hard-hit with the mortgage which spiraled out of control, causing tremendous declines in home prices. They are also supported by major lenders and financial institutions including Bank of America, JP Morgan Chase and Co. and Citigroup who have implemented their own voluntary foreclosure moratoriums.
The moratoriums are patterned after programs implemented by the Federal Deposit Insurance Corporation when they took over and bailed out the subprime lender IndyMac. FDIC put foreclosures on hold while a loan modification program is being implemented.
The same modification program is actually being implemented by the government, banks and other housing advocates in an effort to modify 3 million troubled mortgages and stop the flow of foreclosures. While these groups struggle to make this restructuring program work, a freeze on mortgages would give them and homeowners enough time to work on details of the modification.
Critics however are wary of the effectiveness of moratoriums in dealing with foreclosures, citing failures experienced when it was used extensively during the Great Depression. Moratoriums would only be effective in providing time for the loan modifications to take effect. It is not, however, a magic trick that would allow homeowners who are delinquent in payments for several months to just suddenly do what they could not accomplish 3 months before.
Still, efforts placed in this regard are showing that the nation is in the right direction.