Foreclosure moratorium may harm fragile economy--SIFMA

The Securities Industry and Financial Markets association (SIFMA) has cautioned that the moratorium on foreclosure in the United States could be “catastrophic.”

The demand for halting foreclosures was raised by well known law makers and civil rights activists after it was found that some of the major mortgage processors have filed thousands of affidavits without proper scrutiny in foreclosure cases.

Financial institutions investigating
Bank of America, the nation's largest mortgage service provider announced Friday that it is going to halt foreclosures as it is investigating the reports of “shoddy paper work.”

Other financial institutions like J P Morgan and GMAC Mortgage of Ally Financial services have also announced a temporary moratorium but some mortgage service providers have said that they have no plans for doing so.

It is not clear if any single regulatory body has the power to impose a nationwide moratorium, as mortgage regulations differ from state to state.

Tim Ryan, chief executive, SIFMA, said in a statement, “It is imperative that care should be taken in addressing such issues to ensure that no unnecessary damage is done to an already weak housing market”.

Administration not very keen on moratorium
David Axelrod, adviser White House, said on Sunday that he is not sure about a national moratorium on foreclosures.

Federal Housing Administration (FHA) Commissioner David Stevens held that the administration does not think that a nationwide moratorium is the right thing to do at this time as any such blanket moratorium will simply cease home sales.

The FHA offers mortgage insurance on loans sanctioned by approved lenders.

Experts fear for still fragile economy
Tim Ryan, chief executive, SIFMA, said in a statement, “It is imperative that care should be taken in addressing such issues to ensure that no unnecessary damage is done to an already weak housing market”.

The investors in mortgage based securities are going to face a greater risk from moratorium on foreclosures.

During the financial crisis, the market for such securities has nearly withered but the investors again rallied around after March 2009.

The investors have been satisfied that the value of the mortgaged property would cover the risk on their investments, but with a moratorium on foreclosures, the investors will not be able to realize their investments.

Jim Gaines, an economist from the Real Estate Center at the A&M University, Texas has also warned that if investors started looking at mortgaged based securities as riskier, it could lead to increased costs of borrowing for future house owners.