Last week, senate banking committee chairman Chris Dodd of Connecticut suggested a 90-day foreclosure moratorium as an amendment to the stimulus package in hopes that troubled borrowers could renegotiate better loan terms.
A moratorium will only delay the inevitable. The trouble borrowers involved in foreclosure are experiencing is because of the irresponsibility they have already exhibited. For someone to be in foreclosure, their mortgage can be as little as six months behind payments and can be nine to 12 months behind before an action is taken. What are the chances that in three months these people will be able to turn their situation around?
It is evident that a three-month moratorium will have very little effect in turning the debts of troubled borrowers around. Instead, these people will be allowed to live in their houses for three months without making payments. This is not only ill conceived for businesses and banks because they need their payments to operate, but sets improper precedents, skewing the work-reward relationship of the American economy. If you can't make the payments you promised to make, you shouldn't be allowed the product or service you agreed to pay for. The moratorium should not be enacted, especially if it is estimated that most foreclosures will happen anyway, moratorium or not. A bad investment is a bad investment and should be cut off.
Additionally, a moratorium on foreclosures would only worsen the already troubled liquidity situation in our country. By delaying all foreclosures for 90 days, you delay payments to banks for 90 days. Banks need this money to lend to other borrowers and businesses (responsible ones). This is how our entire country operates. The longer our banks are denied money, the more the government or taxpayers – you and I – have to make up for this deficiency to keep the system afloat. By allowing foreclosures on bad borrowers, banks are able to get money for themselves, without stimulus aid. And our country is able to lend money to people and business who keep their promises.
By allowing bad borrowers to continue to live in these properties, we only deny ownership to responsible borrowers who can make payments on time as promised. A moratorium is ineffective, counterproductive in improving the liquidity market and adds idleness to the housing market. A moratorium only prolongs the inevitable and, in the meantime, contributes to ineffectiveness and decreases incentives to be a responsible borrower.
