Wall Street: Foreclosure halt would be 'catastrophic'
The revelations of potentially widespread botched or fraudulent bank paperwork in home foreclosures haven’t made the Obama administration sympathetic to the idea of a nationwide moratorium on repossessions.
But Wall Street must be worried: Its chief trade group on Monday came out swinging hard against the idea of a moratorium.
A statement from the Securities Industry and Financial Markets Assn. (SIFMA):
It would be catastrophic to impose a system wide moratorium on all foreclosures and such actions could do damage to the housing market and the economy. It must be recognized that the mortgage market, investors and the health of the economy are all inter-related. Investors in the housing market — including American workers with pension funds, 401(k) plans, and mutual funds — would unjustly suffer losses in their savings from these actions. Increased uncertainty in the securitization market would further constrain consumer credit and spending, dampening our already unhealthy economic situation.
If mistakes have been made in relation to foreclosure processing, SIFMA firmly believes such mistakes should be corrected. It is imperative, however, that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy.
Obama advisor David Axelrod said Sunday on CBS’ “Face the Nation” that he was “not sure about a national moratorium, because there are, in fact, valid foreclosures that probably should go forward, and where the documentation and paperwork is proper.”
But Foreclosure-Gate has the full attention of many state attorneys general. This week, as many as 40 of them may announce a joint investigation into foreclosure processes at the largest banks and mortgage firms, Bloomberg News reported over the weekend.
Financial blogger Yves Smith calls the administration’s support for the banks on this issue deplorable. She wrote on Monday:
So we are back to Wall Street calling the shots, the very same Wall Street that invokes the “give us what we demand or we’ll shoot the economy” demand whenever its pet interests are threatened. Here the securitization industry was colossally irresponsible in its conduct, and has created a mess that will be monstrously difficult to remedy … and we’re supposed to plow onward in business as usual mode?
-- Tom Petruno