Unintended consequences in foreclosure moratorium

A story in today’s Washington Post offers one perspective on how the moratorium on home foreclosures backfired: People at risk of foreclosure—or those who are already in-process—could assume that no consequences exist if they simply stop making their house payment (or at least, that any repercussions would be deferred.) Click here to read the story.

The moratorium—not mandated by the federal government but voluntarily adopted by Bank of America, and on a limited scale by some other lenders—was designed to provide time for investigations into improper foreclosure practices, such as having paperwork signed “in bulk” by staff members without the documents actually having been read by bank employees.

Bank of America said today that it would end its ban on foreclosures in 23 states, and begin efforts to seize properties beginning next Monday (October 25). That’s according to this story in the Los Angeles Times (click to link).

Implications: While there were apparently procedural errors in the way some bank employees were handling their foreclosure workload, I’m not hearing anyone say that the eventual outcome in these foreclosure cases would have been different. So a mandated delay would have only extended an already painful problem.

For as long as foreclosed homes remain on the market, the real estate sector will still face a supply-and-demand problem that prohibits that category, and perhaps the entire economy, from healing. Perhaps a smarter way to deal with this situation (IMHO): The White House announced today that it is considering a criminal investigation into the way some mortgage lenders were handling their foreclosure process, according to this story from today’s Wall Street Journal (click to link).

Consumers need to feel confident in both the real estate and mortgage industries before the recovery can gain any real traction. As an example of the turmoil that can keep the market unsettled, see this story from last Friday’s New York Times (click to link).

Consumer confidence starts with transparent transactions… and a consumer that feels like they know what to expect. What can you do—regardless of what you sell—to help customers “connect the dots” about how and why you do business the way you do?

Mike Anderson