Wednesday, October 27, 2010

The real reason why a foreclosure moratorium would be a bad idea

I was on Marketplace the other day debating Mike Konczal about whether a foreclosure moratorium  would be a good idea.  I took the no position for two reasons:

(1) A moratorium would slow down the eventual resolution of the housing crisis;

(2) A moratorium would add yet another level of uncertainty about the ability to foreclose going forward, which would discourage the private sector from returning to the mortgage market.  If lenders can't take away the houses of people who don't make their payments, they will not advance mortgage money in the first place.

But last night it occurred to me why I have such a visceral reaction to such things as moratoriums: they strip property rights without due process.  If a borrower agrees to repay a mortgage, and everything about the mortgage is legitimate, and the borrower ceases to make payments, the lender has a property right to take the house.

I am at times a card-carrying member of the ACLU, because I think the rule of law and due process should apply to everyone.  Many lenders have behaved badly and appear to still be behaving badly.  That doesn't mean that all of them should lose their well-defined rights--even temporarily.