This Is The Change We Have Been Waiting For
Bank Lawyer’s Blog:
Everyone: can we all chant in unison, “Yes, We Can!”?
We can? Cool!
I’m not talking about Barack Obama, I’m talking about a federally-mandated 90-day foreclosure moratorium. The kind being pushed by Chris Dodd. The kind already enacted in California and other states. The kind that scares the pajamas off of mortgage loan servicers (free registration required). With Obama in the White House, the prospects for all of the pet projects of the Democratic powers-that-be in the Senate and the House look so much brighter.
With pressure mounting for Congress to enact a 90-day moratorium on home foreclosures, mortgage servicers are warning that the move could
have the perverse effect of prolonging the housing downturn.
“A
foreclosure moratorium would make a correction take much longer and
have unintended consequences on servicers who already have liquidity
constraints,” said Dennis Stowe, the president of Residential Credit Solutions, a buyer and servicer of distressed mortgages.
Here’s the problem for loan servicers: mortgage servicers advance delinquent loan payments, costs of collection, and foreclosure costs. They recoup those costs when the loan goes into foreclosure, and by delaying foreclosures, you increase the amounts of advances that servicers must make. To fund those advances, servicers are borrowing on their own lines of credit, and paying interest on those advances. That’s good for the lenders who fund those advances, but not good for the servicers.
Critics like Senator Dodd, and his bitty buddy Barney Frank in the House, argue that servicers are deliberately forcing loans into foreclosure to limit the time during which they must make advances and to more quickly recoup the advances made (limiting their own financing costs) and, it is alleged, to pile on fees for additional foreclosure-related services. Rep. Frank has been especially critical of the fact that servicers aren’t responsive to loan modification requests…