Thoughts on the Foreclosure Moratorium
Surely by now you’ve heard about the foreclosure moratorium instituted voluntarily by six major banks. Loan holders of these banks who are facing imminent foreclosure have a 30 day breather to try to find a fix.
- Bank of America
- Countrywide
- JPMorgan Chase
- Citigroup
- Wells Fargo
- Washington Mutual
At the risk of adding to the already substantial din of commentary about the current credit situation in the US, I had a couple of quick thoughts on this particular development.
First, this is hardly a magnanimous move on the part of these banks. It was only a matter of time until Congress decided this was a great opportunity to grandstand and moved to do something similar. Big company executives aren’t dumb and they’d rather call the shots and write their own regulations than be dictated to.
Beyond that, 30 days is not going to help a great many people in danger of foreclosure. Nothing says the banks have to work with the homeowners during that time, just that they’re giving the time to them. From what I know of pre-foreclosure proceedings, if you’re behind on your payments, you have to come up with the whole arrears, not just start making payments again. Big difference. How likely is it for someone who can’t make one month’s payment to come up with several all at once?
Second, when I heard about the plan, my initial instinct was to get frustrated. I play by the rules, pay my bills, get car insurance, pay my taxes. We took out a prudent loan on a modest house. It’s galling to me when people who don’t follow good, basic personal finance practices get a pass. That’s what this feels like to me to some degree.
Though I’m loath to admit it, I have to agree with the banks on one thing about this. Bail-outs and assistance subvert the market process. It makes borrowing more expensive for everyone. Where I diverge from the banks is that they’re all for bail-outs if they are the ones who benefit. Cutting the discount rate feels like bank assistance to me.
Anyone have thoughts pro or con about this moratorium?
February 16th, 2008 at 1:24 am
I’m not a big fan of consumer bail-outs either. And, there is no doubt that many mortgage holders have acted irresponsibly. However, I believe the banks share a lot of the blame for the foreclosure mess and I’m glad to see them eating a big part of the loss.
They have incentivized mortgage brokers into putting many people with good credit scores into bad loans. And, at a time when the prime interest rate is historically low, the interest rates on many mortgages are indexing up to unreasonable levels.
I think, the banks are the biggest part of their own problem. They need to “get real” with their interest rates and underwriting standards.
February 16th, 2008 at 10:56 pm
I’m not a big fan of consumer bailouts in most cases, and this is one of them. This will probably help a few people out, but overall, I think it will just cost a lot of money. But, I’m sure it looks “good on paper” for the politicians and banks involved. I don’t think it will have very much effect on our economy though.
February 17th, 2008 at 2:42 pm
It makes me mad to think that we have to feel sorry for the people that can’t manage their own money problems. It would be SO nice if nobody ever bailed these people out, how are they supposed to learn?
April 6th, 2008 at 7:40 pm
I agree totally. delaying the foreclosure process is only that a delay. Working with homeowners in trouble, I find that many who get a loan modification still can’t keep up. Some of these foreclosures (unfortunately) just need to happen. Economic cleaning.