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| No | 44% | 24 votes | Total: 54 votes | |
| Yes | 56% | 30 votes |
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Add to FavoritesWhen housing prices decreased, homeowners did not have enough equity to refinance their mortgages as expected by the mortgage industry. When homeowners could not refinance, many mortgages reset to higher rates that homeowners could not pay. When they could not pay their mortgages, some homeowners asked for public assistance to help pay their late mortgage payments. Those who could not qualify for public assistance filed for bankruptcy. Once public assistance was formally requested or bankruptcy had been filed in the court, the government had become involve.
What does the government do on a daily basis when there are no national crises to deal with? Answer: Pass and enforce laws, and implement economic policies designed to prevent any national crises. When September 11th occurred, the citizens with and through advocacy groups asked the government to intervene in order to protect national security. In the same way, citizens and advocacy groups have asked the government to intervene in the mortgage market crisis in or to protect national as well as individual economic security. The government has been asked to limit mortgage lending activity, to force the mortgage industry to modify existing loans, and to take an active roll in direct mortgage lending and loan servicing.
The major downside of government intervention in the loan modification process is that the mortgage crisis may drag on for however many years these loans are reset for. Another problem is that investors may lose confidence in the future of the subprime mortgage market and refuse to invest more money into mortgage bond investments. The result would be damaged credit markets, less credit available to potential home buyers and a damaged housing market, fewer houses being sold. Perhaps the biggest opposition to government intervention, particularly to the loan modification proposal is that the mortgage industry is already doing it.
Arguments in favor of government intervention refer to the result of regulation following the Depression era. The regulation of banks and savings and loans, along with the creation of the FHA, VA, and Fannie Mae facilitated the growth of home ownership and the economy that we are trying to preserve and maintain today. Government intervention can help to solve two potential problems with loan modification. First, it can help to soften the losses that can occur in the foreclosure and reselling process. The cost of foreclosure is generally around 25% of the mortgage loan balance. Therefore, lenders generally sell for less than full market value. With housing prices already at a low, these short sales can push housing prices even lower. Second, government intervention can protect mortgage lenders from lawsuits by investors who will bear the brunt of these losses. By setting a legal standard for enforcement of loan modifications, investors become bound by law and virtually unable to bring a successful lawsuit over potential losses.
The Federal Government may not need to pass a law or sign an executive order to freeze all foreclosures. What the Federal Government can do is facilitate an industry led moratorium on foreclosures by creating an environment favorable to mortgage companies who choose to hold all foreclosure activity until economic conditions improve.
Learn more about this author, Denise Finney.
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Yes
What Good Would a Foreclosure Freeze Do?
Although the Federal government has lowered interest rates and put the brakes on the sub-prime mortgage companies, it seems to be too little too late for so many Americans. Not only has the sub-prime mortgage mess affected people directly through bad mortgage deals, but it has also affected many business sectors across the country. It has raised the unemployment rate and threatens the stock market.
Currently, one of the proposals on the political table is to put a short-term hold on the foreclosures of many single-family homes. In essence the government would freeze' foreclosures for a period of six months. It would be similar to something that many states in the Northern and Midwestern parts of the country do to utility companies. In those states, during an extra harsh winter, say below freezing temperatures, the governor will often put a freeze' on disconnections. This usually lasts until the winter months have past, and gives those parents and many elderly, who struggle, just to put food on the table, relief from the fear of literally freezing to death.
Often the middle classes are affected during these periods of time as well, due to the fact that many of the higher paying jobs are subject to layoff during the harsh winter months. We have a very similar problem going on within the mortgage crisis. Many of those job markets that are normally high paying such as construction, banking and real estate firms, are suffering large layoffs and unemployment. It is these people who would benefit from a foreclosure freeze. A six-month freeze may not seem very long, but it may be long enough to help quit a few people. There are two major tasks that could be accomplished in six months.
A six-month freeze on foreclosures would give those people who are employed in these suffering sectors time to retrain. Six months may not be enough time to earn a degree, but it may be enough time to train or begin to train for a new career track. This may not save the person from loosing their house, however it may keep them from becoming homeless altogether.
A six-month freeze on foreclosures would give those professionals who already have a degree time to find another job. There is currently a three-month turn around time in the job market. That means for those people actively seeking a new job, they can expect to search for three months. If a professional had three months to find a new job, and three more of active employment then that person might just have enough time to catch up on the mortgage payments and avoid foreclosure.
Although six months seems like a very short period of time, it is possible that it would be just long enough to make a difference for many middle class families. If more middle class families had the time that they so desperately need to recover from this crisis, the ripple effect may just slow down some of the negative effects that this is having on our economy. In Arizona alone personal bankruptcies are up 97 percent. If less people have to declare bankruptcy and more people are able to train for some of the higher paying jobs then that many more people will have the money to spend on goods and services. I am in favor of a foreclosure freeze.
Learn more about this author, Catherine Fuller.
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