Los Angeles, CA (PressExposure) April 17, 2009 -- Today, the news reported that foreclosure figures were down for the month of January. The Riverside and San Bernardino areas of California have been some of the hardest hit areas when it comes to struggling homeowners and foreclosures. Record numbers of defaults and foreclosures have been reported. Press Enterprise reported that there were 17,629 foreclosure-related actions in Riverside and San Bernardino counties in January, according to a report released by RealtyTrac, an Irvine-based firm that markets properties online. That is 8 percent less than December in the two Inland counties but about 40 percent more than January 2008. Recently, mortgage giants, Freddie Mac and Fannie Mae imposed a moratorium on foreclosures, effectively barring lenders from foreclosing on any properties.
Although this may sound like a good thing, it may not be. Stopping foreclosures with a moratorium, may not be the answer to our mortgage crisis. Even though the numbers of foreclosures have been reduced, this reduction may not necessarily lead to the solution of the crisis because moratoriums often add costs to the foreclosure process and leave servicers and borrowers with effectively "bigger" bills to pay. Additionally, moratoriums result in impediments on statutorily required actions like sending breach letters, notices of default, and debt accelerations.
Not allowing foreclosures to take place does not save homes where the property has been abandoned, converted and is not profitable, damaged, subject to code violations, and where borrowers may have sufficient income to pay their loans but choose not to because of the moratorium. Delaying foreclosure in these aforementioned cases will not only result in higher costs for servicers and borrowers but will also lead to the deterioration of the properties.
Furthermore, one definite side effect of moratoriums is an increase in the number of delinquencies and defaults. A moratorium essentially motivates the faltering borrower to stop making payments. Borrowers who were once stretching, working more hours, adjusting their lifestyles and even liquidating assets to make their mortgage payments to avoid foreclosure now have no motivation to pay their mortgages. Also, these borrowers will then face an increased risk of never being able to recover from their situations. As more penalties and fees are incurred and increased motivation is provided to stay delinquent, the chances for recovery become increasingly reduced.
Another unintended side effect is the undue pressure that will be put on the servicing companies of these loans. The cost to continue to advance principal, interest, tax and insurances payments during the time that borrowers are not paying will cause severe financial hardships for these companies, especially since they do not own the loans, but merely service them.
Ultimately, while the words sound like they hold the answer to the current crisis we are facing, one must look deeper into the proposed "solution" and truly reveal the impact that this "solution" will have on our society and economy. To further distress already distressed parties, in my opinion, would not present a solution to our crisis. While a moratorium is a good first step, it is only beneficial if we use the time to seek and find other answers to our problems that would result in actual positive results.