THE BLOG

A Foreclosure Moratorium Should Be Just the Start

10/11/2010 02:58 pm ET | Updated May 25, 2011

The good news is that recent revelations about foreclosures being finalized based on improper documentation -- legal filings often not even read by the bank officials who signed hundreds or thousands of them at a time -- have spurred outrage nationwide that could lead to action. The bad news is that it's unclear whether that action will be enough.

Last week, The Greenlining Institute called for a 90-day moratorium on foreclosures here in California, and asked California Attorney General Jerry Brown to join the push to halt foreclosures until it can be confirmed that our consumer protection laws are being followed. There are a growing number of calls for action -- including calls for foreclosure moratoriums by many members of Congress and by officials in Texas, Massachusetts, Maryland, Michigan and North Carolina, with more states joining the list all the time.

In a letter to major California banks, Greenlining called for a 90-day moratorium on foreclosures, noting, "It has become clear in the last two weeks that California's homeowners, who have already suffered an unprecedented foreclosure crisis in recent years, may be the victims of potentially fraudulent practices by those foreclosing on them.

In a simultaneous letter to Brown , we noted that in the 27 states that do not require a court to approve foreclosures, "we lack an additional level of scrutiny provided by the courts that would protect homeowners from any fraudulent foreclosure practices." That makes it essential for officials to intervene to ensure that the law is being followed and consumers' rights are protected. A similar letter also went to Brown's Republican opponent for governor, Meg Whitman.

The letters pointed out that communities of color are at particular risk, stating, "Nearly one-quarter of both the Latino and African American communities nationally are at imminent risk of foreclosure." As we've noted before, this is because Latinos and African Americans were often sold high-cost loans when they could have qualified for better terms.

There are signs that at least some in the banking industry are beginning to take this seriously. On Friday, for example, Bank of America announced a nationwide foreclosure moratorium.

But it's clear that this is a crisis that's not limited to just some states or just one or two banks. More likely, the handful of banks at the center of the latest revelations are the tip of the iceberg -- an iceberg that threatens disaster for thousands of homeowners.

A foreclosure moratorium, though an urgent and necessary step, isn't enough. We need bigger, more systematic reforms to stem the tidal wave of foreclosures that still threatens the security of millions of homeowners and the stability of our whole economy.

The much-touted HAMP (Home Affordable Modification Program), based on voluntary modifications of a small percentage of troubled mortgages - primarily through interest rate reductions -- has clearly not worked. Indeed, it was clear last year that these efforts were not succeeding quickly or broadly enough: Last December, the New York Times reported that seventy percent of modifications involving only interest rate cuts, rather than reductions in the principal borrowers owe, had failed after 12 months.

The core of the problem is that millions of homeowners are deeply "underwater" -- that is, they owe far more than their homes are now worth. If that massive issue isn't addressed, everything else is just a band-aid.

A broad foreclosure moratorium is essential, and there are incremental changes to HAMP that might help a little, but it's all just a set of band-aids unless we address the bigger issue. We must help underwater homeowners reduce their principle, and such a program can't depend on the voluntary generosity of banks. This can't wait any longer.