Although the foreclosure freeze is stabilizing the housing market for the time being, it will trigger further housing price declines two to four quarters out, Joseph Murin, former president of the Government National Mortgage Association [Ginnie Mae] told CNBC on Monday.
"What it will cause is a more eroding of confidence in the American people," he said. "And when the American people aren't confident, they're not going to respond, which means the housing market is going to remain sluggish."
Foreclosure stalling is necessary for institutions to reassess whether they are processing correctly, Murin went on to say.
"There's no fraud involved in this," he said. "It's process inadequacy that's causing the problem. Behind the scenes, we're dealing with technology and experience that's probably a decade old. It's not kept up with the huge push [in mortgage debt]."
In 2000, the United States had $6 trillion worth of mortgage debt; in 2009, that figure hit $14.4 trillion, he said.
This comes at a time when dozens of attorneys general announced their intent to launch foreclosure investigations after a number of banks announced a suspension of foreclosure sales.
"Everybody wants to jump on the bandwagon," Murin said. "Let the markets do what the markets do, and we'll find a way out of this process a lot sooner than I think the meddling that's going to go on with this foreclosure process."