Does a Foreclosure Moratorium Make Sense?

Despite some recent good news—like stocks recovering some value—politicians continue to believe they can solve the housing crisis through economic gimmicks.  The latest: a proposal to have a 90-day moratorium on home foreclosures.

The last thing that anyone wants is more folks kicked out of their homes. But if banks don’t recover some capital now, won’t the crisis simply deepen?

Just as much as struggling home owners want to stay in their homes, banks want those folks to stay in their homes.  Banks like it when people are paying their loans and only foreclose on homes only as a last result as it is—they’re better at brokering loans than real estate.

If taking control of a home and selling it on the market is already something banks are trying desperately to avoid, why impose a moratorium?  If the proponents of these plans believe that folks would get back on track with their loan payments if only given 90 days, they don’t need to pass a moratorium.  Banks already avoid foreclosure until absolutely necessary.

But sometimes foreclosure is necessary.  Some folks just aren’t going to make their payments, no matter how much time they’re given.  Their homes should be sold to someone who can, or else we risk draining more money from our financial institutions—money that will no doubt be made up by the taxpayer in another bailout plan.

You can’t take a 90 day vacation from economic reality.  We shouldn’t risk hobbling a broken system even more right now; doing so would hurt the banking system, hurt credit markets, and in the process hurt the very consumers such a moratorium is trying to protect.