Jerry Brown should be questioned very, very closely tonight about a subject that hasn't come up in the gubernatorial campaign: a moratorium on home foreclosures.
The best way to frame the question would be: Do you want people to stop paying their mortgages?
That's a bit unfair. But what Brown's proposing may be unfair too.
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In his role as attorney general, Brown has called on lenders to stop all foreclosures in California until they can prove that they're doing everything right. a moratorium on home foreclosures in California. And he may get what he's asking for. Bank of America already has halted foreclosures in all 50 states. Some lenders have frozen foreclosures in 23 states, not including California, where such actions require court intervention.
There's a case for a moratorium. Some lenders seem to have systematically bungled foreclosures, processing paperwork so quickly and recklessly that it's not clear if everything is legal. Some signatures don't seem to match. Some papers in foreclosures were routinely signed by the wrong person. Notaries who were supposed to witness signatures weren't actually witnessing.
But there's also reason to believe that a moratorium is an overreaction, particularly in California. As irresponsible as the banks have been in handling paperwork, there's no case of a Californian current on his or her mortgage getting thrown out of a house. To the contrary, the foreclosure process is so slow that a personal finance columnist for the Wall Street Journal advised Americans whose homes have lost value to stop paying their mortgages.
Wouldn't it be better for people who are in houses they can't afford to be out of those houses? And wouldn't it be nice if people who have saved and behaved responsibly would be able to buy those houses quickly? And if a homeowner is found to have been wronged, wouldn't it make more sense to force the bank to pay damages to that person -- instead of putting a freeze on even legitimate activity in the housing market?
In supporting a moratorium, Brown is publicly disagreeing with President Obama, whose administration opposes broad moratoriums. “Irresponsible banks need to be held accountable, but if we have not found a problem with a bank’s process we do not believe that we should impose a moratorium where that can hurt the market and hurt individual buyers,” U.S. Housing and Urban Development Secretary Shaun Donovan told the New York Times.
What's clear is that there are risks on both sides. If banks don't fix this problem quickly, there could be legal clouds hanging over millions of homes in California and around the country. On the other hand, a moratrium creates a very basic incentive for people to stop paying their mortgages. If Brown thinks moratoriums are so essential, he ought to explain what is so wrong here that it requires hurting people who are playing by the rules.