By Matthew Zifrony, Attorney at Law
It’s sad that so many struggling homeowners are losing their homes due to foreclosure. Finding a way to keep them in their homes seems like the right thing to do. But is a freeze on all foreclosures the solution?
On the human side, struggling families could use a foreclosure freeze as an opportunity to try to work out their finances and restructure their loans. A foreclosure freeze could also help the struggling real estate industry in the short run by limiting the number of properties competing for a shrinking number of credit-worthy buyers. In theory, that could temporarily increase the price of homes that are being sold.
Short Term vs. Long Term
Although the shore term effects of a foreclosure freeze appear positive, a look at the long term effects reveals an entirely different impact.
In the long term, a foreclosure freeze does nothing more than prolong any possible housing recovery. The housing market cannot fully heal until the troubled loans work their way through the system. To make matters worse, credit will remain constricted and economic growth will remain slow as long as banks are weighted down with their historic high level of toxic assets.
What about the long-term impact on real estate prices? Simply put, real estate prices cannot stabilize as long as such a large number of homes are frozen in the foreclosure process.
The impact that a foreclosure freeze will have on community blight should also be considered. Many foreclosed homes have long been abandoned by their owners. A moratorium prolongs the time these homes will be susceptible to the negative elements that accompany abandoned properties. The lack of curb appeal that abandoned homes has a negative impact on the value of other homes in a neighborhood.
So what’s the best answer?
Focusing on the human side of a mortgage freeze, while ignoring the long term harm that it would cause is irresponsible. Lenders should instead consider other creative ways to prevent a borrower from entering the foreclosure pipeline. For instance, principal forgiveness programs could be expanded for borrowers who are upside down in their loans or who live in communities with a high incidence of foreclosure.
Good faith programs could be created that would allow for borrowers with an established credit and payment history to earn months of loan deferment if they suffer an extreme hardship impacting their ability to pay.
In the best case, a foreclosure freeze is a temporary benefit for struggling home owners. Regardless, a freeze will inevitably result in a large scale drag on the economy while rewarding people who in many instances don’t deserve to be rewarded.
Find other ways to keep struggling homeowners in their homes but don’t do it in a way that risks doing more damage to our fragile economy.
About the Author
Matthew Zifrony is an attorney at law as a director with Tripp Scott located in Fort Lauderdale, Florida, which provides strategic counsel for corporate contractual and transactional issues. He also provides property financing and transaction counsel to buyers, sellers, lenders and developers of residential and commercial real estate.