The Obama Administration Against a Foreclosure Moratorium
Today, the Obama administration lays out the case against a nationwide foreclosure moratorium. In the Huffington Post, Shaun Donovan, the Secretary of Housing and Urban Development, argues that the government is investigating the foreclosure fraud crisis and that a moratorium would prove counterproductive in terms of helping homeowners in the meantime — only driving down home values in areas hit hard by foreclosure:
[B]anks must follow the law — and those that haven’t should immediately fix what is wrong. Given the problems that have already been found and admitted to by some servicers, the Obama Administration fully supports the voluntary moratoria that are already in place and others should they be deemed necessary. Some have suggested, however, that all foreclosures in every state, under every servicer, should be stopped. But a national, blanket moratorium on all foreclosure sales would do far more harm than good — hurting homeowners and home-buyers alike.
Though a few politicians and many housing advocates are calling for a blanket moratorium, it seems unlikely now. But the situation does underscore that the Obama administration could do more, much more, to help families underwater, in foreclosure and otherwise hit by the housing crisis. Towards the end of the piece, Donovan writes:
By the time the home gets to foreclosure, it’s often too late to help families stay in their homes — they may be too far behind or in some cases, they’ve already left the home. ** Banks need to provide more help, more people, more resources to those families facing a crisis long before they ever get to a foreclosure — so more families can keep their homes. And where foreclosure is not avoidable, having been processed legally and appropriately, banks should help families transition to sustainable housing situations with dignity.**
Two things here: First, there is ample evidence that banks are not following and have not followed the proper process for dealing with homeowners in default. Banks are usually contractually obligated to provide a number of alternative solutions to homeowners behind on their mortgages. In recent years, though, servicers have tended to rush homeowners straight to foreclosure. The administration should make sure servicers and lenders are following the preexisting guidelines.
Second, it is all well and good for Donovan to say that the banks should “help families transition to sustainable housing situations with dignity.” But the administration can do more to make sure that happens. It could, for instance, push for right-to-rent legislation to move out of Congress. And the Treasury has spent only a fraction of its Home Affordable Modification Program funding –funding it could be using to provide incentives for banks to keep families in their homes, by improving and expanding HAMP **and related programs.