Proposed Foreclosure Moratorium

May 17, 2007

A proposal to place a six-month moratorium on home foreclosures resulting from subprime home mortgage loans has been made by several consumer and housing related groups. "Nobody wins when a home goes into foreclosure," said John Robbins, chairman of the Mortgage Bankers Association. "Consumers lose their homes and suffer a ding on their credit rating, and lenders and investors lose significant amounts of money.

"The industry wants to take every possible step to avoid foreclosure. That’s why we at MBA have developed a number of tools to help those who are at risk of losing their homes. Lenders are already using a number of those tools to help financially-stretched borrowers stay in their home, including forbearance, payment plans and other options. The problem will be lessened if Congress enacts legislation to expand the roles of Fannie Mae, Freddie Mac and the Federal Housing Administration to provide more housing opportunities for low-income homeowners and those living in high cost metro areas," Robbins said.

Tighter underwriting practices may cause total home sales to fall by about 100,000 to 250,000 nationally, or no more than three percent a year over the next two years, it was predicted by David Lereah, NAR’s chief economist. Many of these households will probably, over time, purchase a home when they have attained the financial capacity to do so by saving for a downpayment or growing their income, he said.

"Tougher lending standards imposed by the marketplace and the regulators are necessary, but we need to be mindful of overcorrection. Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch," Lereah said. Individual lending professionals are also expressing their views on problems in the subprime market. Matt Crane, president of Stockbridge Financial offered this perspective:

"There are always examples of predatory lenders that should be prosecuted. But this is less about predatory lenders and more about predatory lawyers. They are faulting all lenders, most of whom took on huge amounts of risk to give people a shot at the American dream, looking to line their own pockets. At the end of the day, the only results from all this will be wealthy lawyers and a huge segment of the population that will be effectively redlined, creating a huge class of renters that are unable to become owner-occupants."

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