When there are a substantial number of foreclosures, lenders will sometimes consider foreclosure moratoriums. A moratorium has a number of benefits if a borrower is facing foreclosure. Once a moratorium is enacted, the lender will freeze or stop all foreclosure activities for a specific period of time, such as 90 or 120 days.
When a lender agrees to a foreclosure moratorium, it gives the borrower time to consider other possibilities, such as payment adjustments or refinancing. There might be other government programs, designed to stop foreclosure, which a borrower could consider.
A foreclosure moratorium can stop a neighborhood from declining by decreasing the number of potential vacant properties. Vacant properties can cause crime and vandalism to increase.
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A delay in foreclosure can also give a borrower time to evaluate her debt situation and make amendments and adjustments to her budget. These types of adjustments could enable a borrower to start making payments on her mortgage once again.
When you stop the flood of foreclosures, home prices will not decline as much. Based on the law of supply and demand, when supply exceeds demand, as the case would be with an abundance of foreclosures, the price of homes will decrease.
When a foreclosure moratorium is put into place, it could have a negative impact as well. It stops the economy from healing itself naturally by letting foreclosures run their natural course.
If someone is selling her home under normal circumstances and absent of foreclosure, she will not have to compete with a flood of homes on the market from foreclosure, if a moratorium is put into place.