11-21-2008, 02:36 AM
OK, I was off having dinner, and I'm surprised that our guy with the shiny new MBA hasn't analyzed this yet! Thank you for the link to where it talks about this moratorium on Obama's site. Here is it for those who might not have read it:
"Enact a 90-day foreclosure moratorium for homeowners who are acting in good faith: Financial institutions that participate in the financial rescue plan should be required to adhere to a homeowner's code of conduct, including a 90-day foreclosure moratorium for any homeowners living in their homes who are making good faith efforts to pay their mortgages. This will help create stability until the more far-reaching solutions are implemented and give both sides a chance to work out an agreement."
As I was eating, I was thinking about the way in which this is worded. To me, the way in which this moratorium would be implemented is not particularly clear. While there are probably several variations, I thought of two, which would be at the opposite ends of the spectrum.
I can envision one scenario in which the market wouldn't necessarily be flooded with foreclosures at the end of a 90 day period. I don't happen to know offhand how long it takes to complete a foreclosure, but let's assume for the sake of this discussion that it's 60 days. So, on December 1, homeowner A is declared in default on their mortgage. Under the current system, the foreclosure proceedings begin, and their house winds up on the market on February 1 (I'm rounding for simplicity.) OK, now homeowner B is declared in default on December 5, so that house goes on the market on February 5. Homeowner C is declared in default on December 7, so their house goes on the market on February 7.
Now, let's put the 90 day moratorium in effect. Homeowner A gets an additional 90 days before the foreclosure process begins, so, assuming he can't get the issue resolved, his house doesn't go on the market until May 1. Homeowner B, thanks to the 90 day moratorium, is able to get things resolved, so his house never goes into foreclosure nor on the market. Homeowner C just can't get his act together, either, so his house gets its for sale sign on May 7.
What's the basic difference in the way this would work, besides postponing the inevitable for homeowners A and C, and giving homeowner C a chance to avoid foreclosure? If these houses are going to go on the market, the primary difference is that two will hit the market in May instead of February. There are still two, but the extra time salvaged one. What have I missed?
At the other end of the spectrum, we have one 90 day long period during which a moratorium will be in place. Under that scenario, some homeowners might get the entire 90 days while others might get only 60 days or 2 days. That could be what it means, although that certainly isn't the way it reads to me. If that is the way it would work, then, yes, the market would certainly be flooded with houses at a specific point in time.
The bottom line is that there are at least two ways in which this might be implemented. One merely shifts the point in time at which the houses go on the market, while giving an opportunity for a certain percentage of homeowners to avoid foreclosure all together. The second interpretation would dump a large number of homes on the market and create the glut described in the original post.
I think, given the lack of specific details about the plan, that it's too early to be calling doom and gloom. Is doom and gloom a possibility? Of course! But, if I can think of how this might be done without creating a glut, certainly the smart people can come up with an idea!
"Enact a 90-day foreclosure moratorium for homeowners who are acting in good faith: Financial institutions that participate in the financial rescue plan should be required to adhere to a homeowner's code of conduct, including a 90-day foreclosure moratorium for any homeowners living in their homes who are making good faith efforts to pay their mortgages. This will help create stability until the more far-reaching solutions are implemented and give both sides a chance to work out an agreement."
As I was eating, I was thinking about the way in which this is worded. To me, the way in which this moratorium would be implemented is not particularly clear. While there are probably several variations, I thought of two, which would be at the opposite ends of the spectrum.
I can envision one scenario in which the market wouldn't necessarily be flooded with foreclosures at the end of a 90 day period. I don't happen to know offhand how long it takes to complete a foreclosure, but let's assume for the sake of this discussion that it's 60 days. So, on December 1, homeowner A is declared in default on their mortgage. Under the current system, the foreclosure proceedings begin, and their house winds up on the market on February 1 (I'm rounding for simplicity.) OK, now homeowner B is declared in default on December 5, so that house goes on the market on February 5. Homeowner C is declared in default on December 7, so their house goes on the market on February 7.
Now, let's put the 90 day moratorium in effect. Homeowner A gets an additional 90 days before the foreclosure process begins, so, assuming he can't get the issue resolved, his house doesn't go on the market until May 1. Homeowner B, thanks to the 90 day moratorium, is able to get things resolved, so his house never goes into foreclosure nor on the market. Homeowner C just can't get his act together, either, so his house gets its for sale sign on May 7.
What's the basic difference in the way this would work, besides postponing the inevitable for homeowners A and C, and giving homeowner C a chance to avoid foreclosure? If these houses are going to go on the market, the primary difference is that two will hit the market in May instead of February. There are still two, but the extra time salvaged one. What have I missed?
At the other end of the spectrum, we have one 90 day long period during which a moratorium will be in place. Under that scenario, some homeowners might get the entire 90 days while others might get only 60 days or 2 days. That could be what it means, although that certainly isn't the way it reads to me. If that is the way it would work, then, yes, the market would certainly be flooded with houses at a specific point in time.
The bottom line is that there are at least two ways in which this might be implemented. One merely shifts the point in time at which the houses go on the market, while giving an opportunity for a certain percentage of homeowners to avoid foreclosure all together. The second interpretation would dump a large number of homes on the market and create the glut described in the original post.
I think, given the lack of specific details about the plan, that it's too early to be calling doom and gloom. Is doom and gloom a possibility? Of course! But, if I can think of how this might be done without creating a glut, certainly the smart people can come up with an idea!