New York State Legislature to Discuss 1-Year Foreclosure Moratorium

by Peter Vernon on States

Following a recent announcement by the White House that a new coalition of bankers and lenders working closely with the United States Treasury had come to an agreement on invoking a 30 day “freeze”, or moratorium on foreclosure proceedings, Senator Hillary Clinton advocated extending the freeze to 90 days. Clinton, who is seeking the democratic nomination for President this fall, claimed that 30 days simply wasn’t long enough to give homeowners ample time to catch up with they mortgage payments and actually have an effect on the rising rate of foreclosures.

While Clinton’s statement was viewed by many as bold, and unachievable by some, two New York state legislators have recently announced their plan to put a bill before both state assembly houses seeking a foreclosure moratorium of a full year. This would mean that for a full year, certain homeowners could delay making mortgage payments in order to get back from behind schedule on their payments. The legislators also believe that homeowners could use the year to find more lasting solutions to their mortgage troubles, either by refinancing or selling their home entirely.

The bill is the most extensive plan yet offered by any state legislature since the beginning of the foreclosure crisis, and is calling to the minds of many the extended foreclosure moratoriums put into effect during the Great Depression of the 1930’s.

Critics of the bill worry that it may cause many lenders in New York state to become wary of handing out home mortgages to anyone in danger of defaulting, as well as making it much more difficult for anyone to get a home loan during the moratorium.

The proponents of the bill are careful to emphasize that this moratorium would in no way waive the debts owed by homeowners, but that it would simply give them time to catch up with their mortgage payments so that they can actually pay back the lenders instead of going into foreclosure. Most lenders lose money on foreclosures, so those in favor of the bill are pointing out that in the end it is designed to help both lenders and homeowners.

Other states considering moratoriums on foreclosure proceedings are Massachusetts, where governor Deval Patrick has proposed a two month freeze, and Michigan. Michigan, Massachusetts and New York were all hit especially hard by foreclosures in 2007, and interest in slowing the problem down is high, with 2008 expected to see even higher volumes of new foreclosure properties.