Citi, JPMorgan Chase Halt Foreclosures

Citigroup and JPMorgan Chase announced on Friday that they would temporarily halt mortgage foreclosures while the government finalizes its plans to help troubled homeowners. Citi's moratorium runs until March 12 and JPMorgan's to March 6. This may or may not be sufficient time to work out a program and get any regulatory and legislative changes made, but the moratoria are prudent business moves under these circumstances.

The proposals by the government haven't as yet gelled, but Ben Rooney of CNN.com stated that some of the plans include “requiring homeowners to take an affordability test and undergo a re-appraisal to see if they are eligible for a government subsidy. Regulators are also looking into more efficient ways to modify loans for borrowers already in default.”

The fact that homeowners can't pay their mortgages is one of the two biggest factors in creating the current financial mess. Because the loans were securitized to Wall Street investors, the lenders didn't care whether the borrower was a good credit risk; instead, their interest was in making as many loans as possible and pocketing the fee. As a result, many people got loans they couldn't realistically afford. Now that joblessness is up, even more people are in that boat. Fixing the mortgage market is part of fixing the economy as a whole.

Mr. Obama will speak in Phoenix on Wednesday, and more details will come out then. What will have to happen is some kind of financial triage. Some mortgage holders are beyond hope, others will make it without any help. Others are on the knife's edge, where government help will keep them in their homes; without help, they will lose their houses. The devil will be in the details.

Doing nothing, though, will ensure that the largest number of foreclosures possible occurs. That will increase the housing stock seeking buyers. That will put further downward pressure on house prices – and some more families will wind up with a mortgage bigger than the house is worth. The hard times will go on longer than absolutely necessary. The foreclosure moratoria announced on Friday will ensure that some don't slip through the cracks.

© Copyright 2009 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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