While the fact of so many underwater borrowers is a drag on the overall economy, these borrowers also present a specific threat: they are the most likely to walk away (i.e., “strategically default”). By doing so, they would cause home values to fall even further, which in turn would put yet more borrowers at risk of going underwater as well. To stop this vicious spiral, policymakers must encourage underwater borrowers both to stay in their homes and stay current on their mortgages.
A foreclosure moratorium, however, would have the opposite effect by essentially eliminating the penalties of a default. If a homeowner is underwater, why not stop paying the mortgage if they can’t be forced to leave the house?So, on the one hand homeowners walking away from their homes is a dire threat to the overall economy. And on the other hand we must ensure that no steps are taken to which would give homeowners any other option other than to walk away from their home.
If you're a homeowner who is upside down on your mortgage and are faced with a bank which refuses to negotiate and which will fervently pursue foreclosure proceedings why wouldn't you walk away? It's the only rational thing to do from an individual perspective.
There are good arguments against a national foreclosure moratorium. But this isn't one of them and the fact that Zwyicki thinks that it is a little disturbing. How can you not see the issues with this argument?