Fannie And Freddie Play Kick The Can With Foreclosures

Fannie and Freddie announced late today that they would suspend foreclosures until January 9th. From Reuters here is the story:

Fannie Mae and Freddie Mac, the two biggest U.S. home loan finance companies, on Thursday said they would suspend foreclosures of occupied homes until early 2009, as the government moves to stem the tide of home losses plaguing the economy.
Fannie Mae and Freddie Mac said the hiatus on foreclosures — which will run from November 26 through January 9 — will give mortgage servicers more to work out easier borrowing terms for troubled homeowners.

I’m no fan of the idea that eliminating foreclosures will get us to the Promised Land and I think that foreclosure moratoriums are foolish in the extreme since they only defer the inevitable. Recent experience with them-Massachusetts for example-have pretty clearly proved the point that once the moratorium’s deadline passes, foreclosures blossom. But I think there is something even more troubling about this particular announcement.

It seems to be of a piece with the manner in which the Washington class has used the two in the past. Specifically, as a vehicle to carry out social and political goals without the need to debate and appropriate funds in the sunlight. Once again, Fannie and Freddie are pursuing goals with no demonstrable profit motive at the behest of their federal overseers. Taken together with the vague and sloppy manner in which the TARP was enacted along with the Fed’s refusal to divulge the types of collateral it is accepting, a picture of a quite imperious ruling class seems to be emerging.

I would look for the moratorium to carry on much longer than its announced expiration date. The end game is going to be an attempt to shove unpayable mortgages into the bankruptcy courts. Right now the lawmakers are playing “stall ball” until they have the numbers necessary to make that move.

Tom Lindmark

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