This entry is cross-posted on the DMI blog
There used to be time when the idea of a national moratorium on foreclosures was largely seen as an impractical, if not radical, idea. The conventional wisdom has generally been that it is a political non-starter: The government would never sanction it. The lenders would cry bloody murder. How could you so brazenly interrupt the free market like that?
Months ago DMI's own Andrea Batista Schlesinger wrote an op-ed proposing a moratorium n New York State, against the tide of the fair lending advocacy mainstream. ACORN's organizing push to freeze foreclosures in New York State earlier this year seemed so extreme that it helped position the passage of a responsible lending and foreclosure prevention law - one of the most far reaching pieces of legislation of its kind in the country - as an act of responsible moderation.
What a difference an economic meltdown makes. It's no coincidence that the precedent for a foreclosure moratorium dates back to the Great Depression. Over the last few weeks, the idea of state-wide and national scale foreclosure freezes have emerged from the political fringe to the center of public policy debates. Journalist Scott Sabatini has been reporting on a moratorium "movement" in California that has resulted in the Greenlining Institute lobbying Sheila Bair and Congress for a national freeze. Sheila Bair and the FDIC had already employed a foreclosure freeze when they put in motion the takeover and mortgage modification blitz of IndyMac. And just yesterday Freddie and Fannie Mae announced that they would suspend foreclosures of occupied homes through the holiday season.
Is this a gimmick or an effective foreclosure prevention strategy? The answer of course depends on what happens during the freeze period. If homeowners are provided with real opportunities to make their mortgages permanently affordable, then it is a victory for those of us who believe we need to push the do-over button and re-set the clock on a generation of abusive loans.
If on the other and, homeowners are only given temporary payment plans that will eventually return to the loans unaffordability, then it can be a cynical and cruel maneuver that will only serve to prolong the financial crisis.