Number: RL34653
Title: Economic Analysis of a Mortgage Foreclosure Moratorium
Authors: Edward Vincent Murphy, Government and Finance Division 
Abstract: On July 26, 2008, Congress passed legislation creating a voluntary program to enable troubled mortgage borrowers and lenders to refinance their loans through the Federal Housing Administration (FHA). Having created the voluntary program, it remains to be seen if people will be willing and able to participate under current financial market conditions. Meanwhile, the pace of foreclosures continues to rise, even as another category of loans, Alt-A, approaches the peak of its payment resets. The foreclosure process may be costly and cumbersome.3 Some have argued for a moratorium on foreclosures to give distressed borrowers and lenders time to seek financial relief. Others might argue that delaying foreclosures may also delay the recapitalization of the banking system and ultimately delay restoration of stability in financial markets. Proponents might counter that providing additional time to keep current borrowers in their homes will ultimately reduce the magnitude of bank losses and lessen the need for recapitalization.
Pages: 15
Date: September 12, 2008