The Washington Post Explains How Foreclosure Moratorium Hurts Homeowners

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Thursday, 21 October 2010 07:32

No, unfortunately that is not a joke. The Washington Post devoted a major article to explaining to readers how a foreclosure moratorium is actually bad for homeowners. The article explains that for government workers with security clearance, the ambiguous debt status of a mortgage facing foreclosure may raise issues, since being behind in one's debts can be grounds for revoking a security clearance. (The logic is that if you can't manage your finances you might be susceptible to blackmail.)

There are two serious problems with the Post's piece. First, it is unlikely that someone stands in a better position with their security clearance after their house has been foreclosed than before. There may be some uncertainty while the process is in limbo, but the uncertainty is better than having the foreclosure actually take place.

Second, it is not true as the Post asserts that:

"Foreclosure delays started when Ally Financial, formerly GMAC, suspended evictions last month after concerns arose about flaws in court documents used to seize homes."

Actually, the flood of defaults has created a huge backlog as banks try to catch up with the huge number of people who are behind in their mortgages and also in many cases consider loan modifications. In other words, it is not new that many homeowners who are behind in their mortgages would find themselves in an uncertain status on foreclosure. So, there really is no story here.