Bailout

Geithner?s bizarre foreclosure logic

By Felix Salmon

Politico has the transcript of Tim Geithner’s appearance on Charlie Rose last night:

I think it’s important to recognize, Charlie, that if you — a national moratorium would be very damaging to exactly the kind of people we’re trying to protect, because the consequence of that would be in neighborhoods that have been most affected by the foreclosure crisis, where you see lots of houses on the block empty, unoccupied, what it means is those communities will be living longer with houses unoccupied, with more pressure on their house price with the people still in their houses. That would be very damaging.

I don’t follow this logic at all. Geithner is absolutely right that empty houses are a Bad Thing. But he seems to think that a foreclosure moratorium would cause empty houses. Isn’t it foreclosures which cause empty houses?

I feel I’m missing something obvious here — but as I understand it, when a bank forecloses on a house and sells that house, it evicts the previous owners as part of that process. One the old owners are evicted, the house is empty — until the bank manages to sell it. If the foreclosure doesn’t happen, the eviction doesn’t happen, and the house isn’t empty.

Is Geithner implying that banks will continue to evict homeowners even without foreclosing on those properties? Is that even possible?

Update: Treasury responds, via email.

First, at least 40 % of all homes in foreclosure are vacant.  Delaying conveyance of title and resale has devastating impacts on neighborhood values
and increases demand for municipal services.

Also, a blanket moratorium equally impacts the banks that are acting in accordance with the law increasing costs for servicers and investors.
This threatens the safety and soundness of smaller community banks that are not part of the document problem and ultimately limits market
liquidity preventing low and moderate income borrowers from refinancing or buying a house as investors are ever more hesitant to lend to all
but the most pristine credit borrowers.

Full post as published by Macroprudential on October 13, 2010 (boomark / email).