Mortgage crisis

In today's New York Times, Gretchen Morgenson has an interesting column that validates one of the key points I made in my post from several days ago about why the owners of mortgages are not foreclosing more often on homeowners who aren't making their monthly payments.  The answer: Foreclosing would require that the mortgage owners re-estimate downward the value of the second liens to what Morgenson calls "fantasy levels."  That, in turn, would require them to admit that the loans had gone bad and, therefore, require that they repurchase the loans from Fannie Mae and Freddie Mac.

It's hard not to be both amused and angry after reading this story by David Streitfeld in yesterday's New York Times about homeowners who are intentionally not paying their mortgages but are not facing foreclosure because...well...their mortgage servicer isn't foreclosing on them.

You can't call this a "movement" because it doesn't appear to be organized.  As the Times story notes, this is happening with increasing frequency because individual homeowners are realizing that the foreclosure process isn't automatic and are taking advantage of the situation by deciding not to pay. 

Stories like this almost certainly will encourage others to stop making payments, and, as the story also notes, a new business/industry/profession seems to be developing in mortgage payment avoidance counseling.  So, the number of homeowners who simply stop making payments and dare their servicer to do something about it may well continue to grow.

Hardly a month has gone by in Washington since late 2007 without another government effort to avert the tidal wave of millions of home foreclosures.  President Bush established HopeNow in December, 2007.  He signed the Hope for Homeowners Act in July, 2008, and created the Troubled Asset Relief Program to purchase mortgage securities on October 3, 2008.  President-elect Obama backed the second $350 b. tranche of TARP, which was released by a Senate vote on January 15, 2009, with a new requirement that at least $40 b. set aside for averting foreclosures.  Mr. Obama established the Making Home Affordable Program on February 18, 2009 and signed the Helping Families Save Their Homes Act making modifications to the Hope for Homeowners Program to make it more effective on May 20, 2009. Early this week, Larry Summers and senior administration officials called mortgage servicers to the White House to berate them for not doing more to avoid foreclosures.

None have worked.

CNBC's Rick Santelli started this (see below).  Now it's my turn to vent.

See if you can watch this report by Jane Wells from CNBC that aired yesterday without cursing.

http://www.cnbc.com/id/15840232?video=1008119754

The piece is about a chiropractor who owns four homes, is behind and underwater on all of them, and is demanding that he be bailed out.  He insists that the only appropriate thing is for his lenders to refinance these properties at their current market value.  Otherwise, he says he's going to abandon all of them and hurt the economy.  In other words, he says he has a gun pointed directly at the economy's head and is going to pull it unless someone meets his demand.

Also note that he's unrepetant, that he's an investor trying to retain his investment ather than someone who is just trying to stay in his home, that he's intentionally leveraged to the hilt, and that he absolutely thinks he deserves the help.

Remember that he no longer deserves to be considered innocent because he's admitted everything.