The Housing Chronicles Blog: Foreclosure moratorium has historical precedent

Tuesday, March 4, 2008

Foreclosure moratorium has historical precedent

Although many laissez-faire proponents continue to argue against any government intervention into the housing & mortgage crises in favor of Adam Smith's "invisible hand" letting free markets create their own solutions, some historians are pointing to the Great Depression, when moratoriums on foreclosures sometimes lasted many years. From a New York Times story:

The Bush administration recently announced a plan to delay foreclosures for some troubled homeowners for 30 days. Senator Hillary Rodham Clinton, in the race for the Democratic presidential nomination, has called for a 90-day moratorium on foreclosures.

But two state legislators have been quietly pushing for an even longer reprieve for homeowners in New York State: a one-year moratorium...

The measure would allow residents to remain in their homes while granting them time to work with lenders to modify their mortgages.

The bill is one of the most far-reaching state proposals to address the crisis in subprime lending and foreclosures, and it recalls the long-term foreclosure moratoriums that provided relief to homeowners in the 1930s during the Great Depression...

If it became law, the moratorium would be the first of its kind in New York State since 1933, when state lawmakers and Gov. Herbert H. Lehman imposed a moratorium of roughly one year on foreclosure on all real estate for which interest, taxes and other charges had been paid. That moratorium was renewed annually until 1949.

“Some people say, ‘Well, that’s too crazy,’ ” said Bertha Lewis, executive director of New York Acorn, referring to the proposed one-year moratorium. “We say, ‘Look, either we are in a crisis or we’re not.’ We have to do something in New York State. This crisis is real, just like it was real in 1933 during the Depression.”...

The bill’s proponents will have to allay concerns that a one-year moratorium might make mortgage lenders less inclined to extend loans to New York home buyers, by reducing their leverage over borrowers who do not keep up with payments. But the bill has received support not only from many Democrats, but also from Mr. Padavan’s fellow Republican lawmakers including State Senators James S. Alesi of the Rochester area, Martin J. Golden of Brooklyn and William J. Larkin Jr. of the Newburgh area of the Hudson Valley.

Mr. Padavan described the bill as an immediate, “common-sense solution” to the foreclosure crisis. “This is a freight train coming down the tracks,” he said, “and we’re just trying to slow it down so people can deal with the underlying problem.”...

Foreclosure delays and moratoriums have been proposed in other states. Last April, Gov. Deval Patrick of Massachusetts directed state banking officials to seek foreclosure delays of up to two months from lenders. The delays were sought on a case-by-case basis for any homeowner who had filed a complaint with state banking regulators. In Michigan, a group of activists has been pressuring Gov. Jennifer M. Granholm to impose a five-year foreclosure moratorium.

New York’s one-year moratorium, if passed, would not take effect on a case-by-case basis; it would be mandatory for court-ordered foreclosures. It would impose a one-year delay from the time a lender has proved its entitlement to foreclosure to the time the court order allows the foreclosure to proceed.

The bill, which has been referred to the Judiciary Committees of the Assembly and Senate, calls for the lenders and the homeowners in foreclosure cases to work out monthly payment schedules in the interim under terms that are “equitable and just.”

The goal of a payment schedule is to preserve the financial position of both parties, and a homeowner’s failure to adhere to the terms of the payment schedule could result in a lifting of the moratorium, the bill states.

“This is not a giveaway,” Mr. Padavan said. “We’re not paying these people’s mortgages for them.”

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