mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Sunday, January 20, 2008

Will stopping forclosures hurt more than it helps?

So everyone seems to be wanting to make it harder to foreclose on houses - as I mentioned before, Hillary is running ads saying she is going to freeze foreclosures, while in Maryland this sad story is prompting talk of changes to the laws regarding foreclosure to make it harder and slower to foreclose on houses.

The Columbia taxi driver's story is sad - it's a perfect storm of mistakes that resulted in him losing his house - the title company never paid off his mortgage, the bank lost the copy of the check that would prove he paid it, he didn't get the foreclosure notice, the lawyer he hired couldn't legally practice in Maryland.

It's sad, but it's also one-of-a-kind - most people who lose their houses don't lose them because the bank or title company screwed up the paperwork, but because they didn't, well, make their mortgage payments. And laws made because of one-of-a-kind cases aren't usually good laws.

I had found a really good article a while ago on how a large chunk of mortgages that people defaulted on involved fraud - people lying about their income and the like - but the best I could find now was this.

But while it's sad to see people kicked out of their houses, it's also necessary for our credit system to work. If mortgage companies can't foreclose on houses from people who aren't making payments, then they are going to be much more careful about who they write mortgages to, and they are going to charge more - and first-time buyers, buyers with thin credit files, buyers with bad credit - are not going to be able to get mortgages, or are going to be charged way more. And that's going to hurt home sales and home values anymore. And meanwhile, people who lied on their mortgage apps or who haven't bothered making payments are going to keep living in houses free of charge.

The reason that mortgages are typically at a far lower interest rate than, say, credit cards (not counting promo balance transfer offers) is because they are secure debt, and because the bank knows they can take back the house if the buyer doesn't pay. Take that away, and mortgages get more expensive and harder to get.


At 8:21 PM, Blogger tralatrala said...

I think the whole 15 day foreclosure is kind of scary. To evict people out of rentals you need to post 30 days notice at least. Maybe requiring to show proof of notice would be an ok thing, but making it nearly impossible is not a good thing. Maybe there's an in between that would make the average joe more comfortable?

At 9:51 PM, Blogger mad anthony said...

The main problem with requiring notice receipt is a small group of people may try to dodge the notice, the same way some people who know their cars are about to get repo'ed hide the car.

It may well be worth it, but it's hard to say for sure. And aside from the occasional paper error like the Columbia taxi driver, I would guess most people being foreclosed know it's going to happen at some point - I mean, if you don't pay your mortgage for a couple months, you've got to figure you are going to be foreclosed on eventually...


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