A moratorium on foreclosures will be hard on the economy and delay a housing recovery, said former Fannie Mae chairman and CEO Franklin Raines on CNBC.
"I don’t think a freeze would really accomplish much,” said Raines, who is currently the director of Exclusive Resorts. “The people who are facing foreclosure today on average, they haven’t made a payment in over a year—in some cases, two years.”
"Housing is 20 percent of the economy. We are not going to have a real recovery until there is a recovery in housing," he said.
“All we will be doing is slowing down an inevitable process where the homeowner isn't disputing that they haven’t paid," said Raines. “And we simply need to move on.”
His comments come after attorneys general in all 50 states Wednesday agreed to join forces in an investigation into whether banks and other lenders have used false signatures and documents to justify foreclosures.
Meanwhile, major mortgage lenders such as Bank of America , GMAC, JPMorgan and PNC Bank have voluntarily halted foreclosure activity in some states, if not all 50, as they review their foreclosure process. Some politicians have called for a nationwide freeze on all foreclosures.
Raines said that the cost to banks will be high, especially since they are already paying “significant costs to manage the foreclosures.”
Raines added that loans that remain out there should be restructured “so that we can get out of this mess of people who are having a drag on the economy, a drag on confidence by consumers.”
“We need to have a major restructuring of the outstanding mortgages so that we can move forward with confidence and vigor,” Raines said.
Raines, who was Fannie Mae's CEO from 1994 to 2004, negotiated a settlement in 2008 with the Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae, after the agency accused him of accounting irregularities while he was in charge. Raines paid a $2 million fine and gave up stock options valued then at over $15 million, according to a consent order.