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The audacity of false hope

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POSTED June 19, 2009 1:41 a.m.
Much hullabaloo has been made over California’s 90-day foreclosure moratorium that went into effect June 15.

It isn’t the lifesaver that it is cracked up to be and it could very well be akin to attaching a chain and concrete on the Northern San Joaquin Valley housing market as it keeps treading water.

Virtually all of the big players in the foreclosure mess already have loan modification processes in place and therefore are exempt from the moratorium. And after being burned big time with loan modifications last year that were primarily interest rate driven, you can bet that the mortgage holders aren’t going to stray too far from today’s strategy. That strategy, simply put, is to seek out those borrowers who are in serious trouble but who haven’t yet defaulted. They work agonizingly slow with those people to either roll back interest as low as 1 percent temporarily and take it back up over the years, lower the interest and extend the years to the loan out to 40 years, or reduce some of the principal.

After seeing a 60 percent plus failure with buyers in San Joaquin County who missed payments and went into foreclosure and got modified loans and then still didn’t make payments, it is doubtful banks are going to help very many folks who haven’t made two to six months of payments.

Will the moratorium help some people? Perhaps. The other players who haven’t adopted the Obama administration’s modification guidelines simply have to wait 90 days and they can continue going on their merry way.

There is the potential to hurt the overall economy if a significant number of homes are simply postponed from going through the foreclosure process for 90 days. Interest rates are rising. Rates could climb significantly in 90 days wiping out a segment of the market of buyers.

And if the 90-day moratorium simply leads to a huge influx in foreclosures in three to four months it could hammer prices downward even farther.

There is also the issue of banks having a moral obligation to their stockholders many of which are investment groups managing retirement funds.

The bottom line when it comes to the 90-day foreclosure moratorium? It has the potential to do a heck of a lot more harm than good.

All the moratorium will probably end up doing is slowing down the time it takes for a lender to foreclosure on a home and resell it.

And that is not a good thing for California or our community.

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