The so-called Masters of the Universe are at it again. Some of the same large financial institutions that caused the financial crisis have engaged in practices that could ultimately stunt the economic recovery. Several mega-institutions’ questionable foreclosure practices, such as “robo-signing” foreclosure documents, have made front-page news and have led to foreclosure moratoriums at several firms and an investigation by all 50 state attorneys general.
However, the danger of the documentation flap is not likely to be to the borrowers involved, as there have been no reports of homeowners being wrongly foreclosed on because of paperwork errors. Rather, the true threat is the call from consumer activists for a national moratorium on foreclosures.
A mandatory moratorium could wreck the mortgage market and jeopardize the economic recovery. Fortunately, the White House, regulators, members of Congress and leading commentators on the right and left have voiced their opposition.
Community bankers do what the mortgage factories should have done all along—work directly with borrowers. Because of this, community banks generally haven’t experienced a spike in foreclosures. Nevertheless, we all would be negatively affected by a moratorium. Once again, the irresponsible practices of the nation’s largest financial firms are imperiling our financial and housing systems.