Freddie Mac's COO Bruce Witherell wrote a now much talked about blog post on Monday arguing that legitimate foreclosures should be going forward, continuing the government's position that has been very pro-market recovery. As I've argued before (most recently at NRO a few weeks ago), stopping all foreclosures would just further aggravate the shadow inventory, drag out the recovery process, and favors sellers over buyers on a purely arbitrary basis. Witherell takes a similar position:
Foreclosed homes make up 25 percent of all home sales today, and the nation's supply of foreclosed properties is likely to remain high in the months ahead given the current pace of the economic recovery. This inventory needs to move through the system before we can begin to see a sustainable housing recovery.
He then goes further to make the point that while the process needs to be fixed, documentation problems don't remove the responsibility of homeowners to pay for their mortgages:
As an industry, we must move aggressively to fix what is broken in the foreclosure process. We must safeguard borrowers' rights by ensuring that servicers follow the law and avoid shortcuts. But we should not prevent legitimate foreclosures from going forward across the board, because the underlying rationale for foreclosing – a borrower falling irreparably behind on mortgage payments – is unlikely to change even when documentation problems are resolved.
This is nearly the exact point I made earlier this month (also at NRO), and it's a very important one that should be taken into consideration by everyone who wants a blanket foreclosure moratorium:
If banks don’t have the proper paperwork, they shouldn’t move forward with the foreclosure process — even though this would hurt the banks and the broader economy. However, if they do have the paperwork, then the foreclosures should go forward. Banks need to get this right, but that doesn’t mean that foreclosure-gate problems should halt the whole machine in the meantime.
See the whole Freddie Mac blog post here.