Homeowners Deserve a Foreclosure Freeze
Many prominent Democrats and Republican Texas Attorney General Greg Abbot joined together to call for a freeze of all home foreclosures in the United States. Given the current situation, such a freeze is a good idea.
The still-slow economy, heavy use of gimmicky, exotic financial products, and consumer irresponsibility have kept foreclosures near record highs. Perhaps as a result of the increased activity many companies appear to have played fast and loose with the legally required paperwork. Three big players, JPMorgan Chase, Bank of America, and Ally, have already suspended many mortgage foreclosures in most states because of paperwork problems. Abbot also accuses Wells Fargo, CitiMortgage, HSBC and others of playing the same games. Some of the charges against the lenders—particularly the one that officers signed off on foreclosure papers without actually reviewing them—seem quite serious and have significant relationship to the “liar loans” that many of the same banks profited from during good economic times. One foreclosure outsourcing company, Lender Processing Services, stands accused of making a great number of mistakes. Given the foreclosure process’ immense financial and human costs, furthermore, it’s difficult to believe that any error in it can be considered “harmless” without significant investigation.
If they want to revive their deservedly battered image and fix problems with the foreclosure process, the major banks should announce a voluntary “stand down” from foreclosure activities for a short period, perhaps 30 days. During this time, banking regulators and, if necessary, Congress, should narrowly relax antitrust laws to give banks a safe harbor to share best practices and streamline the foreclosure process. Since so many particulars of the law are decided at the state level, furthermore, Treasury and the major banks should begin work with state legislator groups (the American Legislative Exchange Council and National Conference of State Legislators in particular) to work towards harmonizing state-related foreclosure laws. Banks should also conduct internal reviews of their processes. The point of a “stand down” shouldn’t be to give people facing foreclosure breathing room (although, of course, that will be a consequence) but rather to make sure that banks that do foreclosures do so under the law. Right now, any number of foreclosures moving forward could well be downright illegal.
People who do not pay their mortgages, of course, should generally lose their homes. Many of the people now in trouble with mortgage lenders made deliberate, bad decisions in taking out loans and should pay the costs of these decisions. But the sheer number of errors the banks have made does appear worthy of attention. Democrats will probably benefit politically from a foreclosure pause but that doesn’t mean it’s the wrong move.