As 23 states already hang in limbo with state-wide foreclosure moratoria in place on the parts of at least two of the country’s top three banks and legislators strive to implement more sweeping moratoria throughout the country, lenders and investors are wondering where to turn next. Just last week, a piece of legislation designed to expedite the eviction process on people who had not paid their mortgage payments was vetoed by the President on the grounds that the foreclosures and evictions might be invalid, and the short sale industry is grinding to a standstill as title companies refuse – or consider refusing, depending on your source – to insure titles on homes with GMAC/Ally loans. In fact, nearly 40 of the 50 states in the union are now calling for a comprehensive freeze on foreclosures until the scope of the problem is clarified.
While some might argue that the lenders in question deserve to suffer since they are the ones that haphazardly signed invalid foreclosures and may have evicted innocent homeowners, the facts remain that the vast majority of defaulted loans are, in fact, in default because they were not paid. The foreclosure moratoria could make things worse not only for homeowners who are trying to resolve their problems, but also for lenders, who stand to lose millions if not billions of dollars while properties stand inhabited by in default. Furthermore, even loan modifications may be off the table for now, since the entire default and foreclosure processes are now in question, and these play a major role in the decision of a lender and a homeowner to attempt a modification.
While critics do point out that loan mods are not particularly profitable for lenders anyway, they do enable lenders and homeowners to start collecting and paying, respectively, their mortgages once more. Now that there is a foreclosure moratorium in place in most parts of the country, it is possible that all incentive for loan mods on both sides could disappear, eliminating one more avenue for homeowners and banks to resolve their fiscal issues without necessitating, ultimately, a foreclosure.