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Preventing foreclosures won’t fix America’s housing mess. Encouraging banks to write down mortgages might

AMERICA’S mortgage lenders are again at the centre of a scandal. This time the cause is not the recklessness of their lending, but the sloppiness with which they are dealing with the resulting defaults. Recent revelations suggest that many lenders rode roughshod over legal niceties to push delinquent borrowers out of their homes. Although banks claim the irregularities are minor, “Foreclosuregate” risks becoming a quagmire. Prosecutors across the country have launched investigations. Many politicians (though to his credit not Barack Obama) have called for a moratorium on repossessions.

None of this will help America’s moribund housing market. Tying the process of repossession in yet more knots will make it harder for the market to clear and for house prices to find a floor. Ideally, politicians ought to speed up foreclosure, which in some states can take up to two years. Moving somebody out of his home quickly may sound heartless; but stretching the process out is a bad idea. Would you bother to look after a property you were due to be expelled from? …

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