Ellickson's analysis suggests that this is just about the worst of all possible policy responses. By drawing out the foreclosure process, these moratoria increase the time during which homes are no-man's-land. During such periods, homes and neighborhoods depreciate. A better policy would move the home quickly, either back into the hands of the owner with a new, more realistic mortgage, or into the hands of a new owner that can afford the house.
Given how often the existing owner defaults again on the "realistic" mortgage, I vote for the new owner. Also, I would say that the drawing out the process of shutting down insolvent banks has exactly the same problems. During the period of uncertainty, the value of the bank plummets, for a variety of reasons.
I get the sense that cutting losses and shutting down bad projects is one of the most psychologically difficult things to do. One of the things that recessions do is that they give people permission to shut down bad investments. Thus,, Home Depot is shutting down its "Home Expo" unit now. It was always a flop, and they could have shut it down at any point, but now they are willing to do it. The Post Office should have been cutting costs years ago, but now they think they might be able to do it. And so on.
To reduce the human suffering of speedy evictions, the government could give people who lose their homes a lump sum payment, perhaps $5,000, a relatively modest sum that would help at least to offset the costs of moving and finding a rental unit.
I've been saying that for months.
The connection between homeownership and structure type implies that when the federal government gets into the business of supporting homeownership, it also gets into the business of supporting single-family detached homes--and this means supporting lower-density living. New Yorkers have converted plenty of rental units into co-ops, but still 77 percent of the households in Manhattan rent. The government's big post-war push into homeownership was inevitably also a push to suburbanize. You do not need to be an enemy of the suburbs to wonder why the government is implicitly urging Americans to drive longer distances and flee denser living.
His bottom line: get rid of subsidies to mortgages and home ownership; instead, promote housing affordability by loosening land use regulation.