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Debate rages over foreclosure freezes

Premium content from Phoenix Business Journal – by Jan Buchholz

Two Phoenix housing experts predict that a foreclosure moratorium would be a disaster for the state, while two Arizona politicians say something drastic has to be done to curb abuses by lenders.

Arizona Attorney General Terry Goddard is collaborating with attorneys general from other states to address alleged mortgage company misdeeds. He said that group has not called for a moratorium, but “the system is seriously broken.”

“The No. 1 complaint I receive at my office is that people have been negotiating modifications in their loan and all of a sudden they get hit with a foreclosure,” he said.

Goddard believes consent decrees through the judicial system would be the fastest way for states to straighten out the mortgage industry.

U.S. Rep. Gabrielle Giffords, D-Ariz., still is calling for a moratorium, despite statements from the White House

that President Bar-ack Obama will not support one. Giffords was one of the first federal lawmakers to come out in favor of a moratorium after it was disclosed that some banks might have signed off on foreclosures without reviewing property files. The “robo-signing” scandal led some banks to voluntarily halt foreclosures, at least temporarily.

“Congresswoman Giffords believes the White House is wrong,” said C.J. Kara-mar-gin, Giffords’ spokesman. “She believes a three-month (moratorium) is absolutely necessary.”

Giffords said lenders need to be “held accountable” and “thoroughly investigated” — thus, the need for time to sort things out.

But local residential real estate experts say a moratorium would wreak havoc on the housing market and eventually lead to an even greater foreclosure crisis.

In the Oct. 18 “Monday Morning Report,” Phoenix-based housing consultant R.L. Brown warns about the potential negative effects of a moratorium.

“In our view, the worst thing that could happen to the housing market at this point is to see a drawn-out moratorium on foreclosures that could essentially shut down housing, allow a further buildup of unsold inventories, and further damage consumer confidence concerning housing overall,” the report states.

Bank of America and JPMorgan Chase & Co. have stopped foreclosures temporarily, according to the Attorney General’s Office.

Bob Bemis, CEO of the Arizona Regional Multiple Listing Service, said a moratorium will erode investor confidence and dramatically slow the sales process.

Bank-owned properties that have been taken back through foreclosure represent a significant segment of the sales market, Bemis said. About 43 percent of home sales in September involved bank-owned properties.

A large portion of the buyers of foreclosed homes are investors, “because regular buyers are having trouble getting loans,” he said.

If investors are spooked by hints of a moratorium, the market will shrivel up again and another flood of properties will hit the market when the situation is fixed, Bemis said, adding that could create huge swings in home values, creating more instability.

Greg Burger, co-principal of R.L. Brown Housing Reports, said the U.S. Treasury Department needs to step in quickly to “lay down some rules and not spend a lot of money trying to figure out how we got to this point.”

Burger conceded the sit-uation is “a mess,” but he said it’s not clear whether fraud is involved or if the problems stem from a lack of oversight. Either way, he believes the U.S. Treasury Department should take the lead in

fixing it.

Goddard, who is running for governor, said there’s no time to wait for the federal government to act. He said states have had issues with lenders for a long time and have not received federal support to deal with the problem.

“This is not a new issue. The AGs are highly frustrated by (the lack) of federal action,” he said.

The Treasury Department and various regulatory agencies should have addressed lender issues a long time ago, he said.

Goddard said a steering committee of 12 state attorneys general is preparing a plan to address “more than just the robo-signing,” but those details have yet to be fleshed out. He said the goal is to get all of the nation’s lenders to agree to certain stipulations.

“And then a judge would impose the rules. That would be my preference,” he said, adding that plan could address the problems quickly. “I could see that being wrapped up by the end of this calendar year.”