Banking Law

Housing Wire's Paul Jackson has been adamant for some time about the utter uselessness of foreclosure moratorium laws in doing anything other than delaying the inevitable for borrowers and in increasing ultimate losses to servicers and lenders. Last December, we noted that, based upon Paul's most recent reporting, we expected a "tsunami of foreclosures" to hit in 2009.

Well, the "tsunami's" coming, and Paul is anything but shocked. In an editorial piece in today's Housing Wire, Paul could no longer restrain his ire.

So we?re seeing a borrower backlog in the default pipeline. Are these borrowers exiting the pipeline via other means, since foreclosure hasn?t been a viable option recently? The data again suggests the answer is a resounding ?no.? While cure rates have been increasing in comparative terms over the course of the moratoria duration (essentially Dec. 2008 to Mar. 2009), in real terms cures remain tough to come by.



[...]

What we are seeing, however, is servicers quickly moving to clear bad assets as soon as the GSEs and government pressure points will allow foreclosures to proceed. Analyst Mark Hanson of The Field Check Group circulated data to subscribers last week showing that for California, among the state?s top five servicers, the volume of notices of sale surged more than 170 percent between February and March 2009 alone, from 4,410 NTS filings in February to 11,981 in March. (Notices of sale indicate an imminent foreclosure, usually within a 30 to 60 day timeframe, depending on locale.)

Which means that the financial press, consumer groups, and Capitol Hill are quickly coming to realize something that most of us from the mortgage space have long known to be true: the problem here isn?t entirely the mortgage instrument, and moratoria ultimately can do nothing more for most troubled borrowers than postpone the inevitable.

Paul cites  a recent article in The Wall Street Journal article that demonstrates what Paul's been ranting about for quite a long time: borrowers who can't pay their loan today are going to be even less able to repay another 90 days' interest that accrues during the moratorium period.

This should not be considered news to anyone inside the mortgage banking space, or anyone that reads HousingWire. As we?ve written about numerous times in this space, no amount of modification can replace a lost job, or a long-term loss of income. And with 15.6% of the nation?s workforce now either unemployed or underemployed, the problems in the nation?s mortgage markets are as much a broad economic problem as they?re a problem tied to blow-and-go underwriting standards and creative loan products.

?The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can?t be stopped without a national moratorium,? Field Check?s Hanson wrote in a note to clients last week. Here?s to hoping that we?ve already learned our lesson the first time around on this.

"Already learned our lesson." What are the odds?

Expect to see a push from certain quarters for a federal foreclosure moratorium law. When it comes to the current Congress, no law is too useless to be enacted if it plays well to a core constituency.