walkitout (walkitout) wrote,
walkitout
walkitout

foreclosure moratoriums

This would be a surprisingly easy story to miss, if you weren't obsessed with the economy/real estate market currently. About a year ago, a moratorium on foreclosures involving subprime mortgages went into effect. More recently, a 90 day moratorium on _all_ foreclosures went into effect. (These are all in Massachusetts, which is not where I live.) Other towns, cities and states have implemented various moratoriums as well; I'm not at all up to speed on the details of these.

The foreclosure process goes something like this. I borrow money with a certain understanding as to how and when it will be repaid, with the further understanding that if I don't meet those terms, the lender can take the house, sell it, and use the proceeds to pay off what I owe and I will owe the remaining amount (if any, and if it's not a non-recourse loan) or get the remaining amount (if any). The details of taking the house away from me and selling it necessarily involve the local law (sheriff, etc.). Thus, the local law can modify the process, say, by the governor and/or legislature changing the rules. There were already some waiting periods built into the process; the moratoriums for the most part extend those and/or add new ones, generally at the front of the process, i.e. before the borrower is booted out of the property (or, conceivably, renter, if not occupied by the owner, er, borrower, whatever). There are many steps to the process. Once started, the process need not be completed, if the lender decides not to continue, say, because they came to some sort of agreement with the borrower. Among other things, if the borrower can produce all the cash (balance owing) before the end of the process, the lender can't complete the process. (In fact, sometimes producing all the cash after the sale can get your place back, in some jurisdictions, under some circumstances, but that's neither here nor there for my purposes.)

A variety of people who believe that housing got way freaking out of control think this moratorium stuff is a bad idea, typically presenting their arguments against in a couple of different ways. Just rip the bandage off arguments often invoke Japan real estate. Fairness arguments revolve around how I was so responsible I didn't do some crazy loan product to buy something too expensive why should I be punished just deflate this sucker so I can afford to buy finally. Banks aren't overly happy about the moratoriums, because this takes a long, drawn-out process and makes it longer. The argument for the moratoriums is, let's give the borrower time to work with the lender to come up with a solution -- and motivate the lender _to_ come up with a solution.

Another way to get a moratorium is a little less official. Because local law (e.g. sheriff) is involved in the process, local law can decide to influence the time frame (drag their heels, would be the unkind way to put it). Local law is _highly_ motivated to do this in some areas, with the complicity of their immediate supervisors (councils, mayors, etc.) because the more REOs sitting around being vandalized, partied in, squatted in, and generally running the neighborhood down, the harder it is on the cop-on-the-beat who has to patrol these disasters. Given that the banks are (apparently) not reliably paying for utilities, real estate taxes, etc., it's not like the town wins much by booting the owner/borrower/renter (who is, if nothing else, at least stopping someone else from looting the plumbing fixtures, copper wire, etc. in the house and, hopefully, not allowing hordes of teenagers to do what teenagers love to do in the house). This kind of moratorium is apparently also happening in some towns/cities/etc.

Does this sound like an elaborate and expensive game of chicken to you?

Because it sure sounds that way to me. I get why each team is arguing that the other side should just cave. I really do. But the game as a whole is a bad, bad, bad idea.
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