MSNBC The Rachel Maddow Show w/ CHRISTOPHER HAYES of The Nation - 9 July 2010:
HAYES: "About one in four homeowners in America are currently underwater on their mortgages. What does underwater mean? It means they own the bank more than what their home is worth.
Now think about that for a second. If your home is worth $350,000 dollars, and you owe the bank $400,000, the rational, money-saving thing to do is to simply stop paying your mortgage. Why break your back to hand the bank $50,000 when you can just cut your losses and move. Deciding to do that, to intentionally walk away from an underwater mortgage, is called, in the mortgage business, strategic default.
Today, the New York Times had a fascinating article about just who it is that seems to be doing the strategic defaulting. From the data we have, it appears that affluent homeowners are the ones most likely to pursue this strategy. 'More then one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.... About one in 12 mortgages below the million-dollar mark are delinquent.
O.K., but at the same time that rich people are making use of the impeccable logic, the federal government has decided it should be off-limits for everyone else. Here's Alan Grayson, congressman from Florida, speaking to Secretary of Housing and Urban Development Shaun Donovan:
GRAYSON (VIDEO): 'Do you think that people should continue to pay their mortgages, or should they just move across the street and start over again?'
DONOVAN (VIDEO): 'I believe that we have a system that depends on consumers paying their mortgages, and I would not here, or elsewhere recommend to people that they not pay their mortgages.'
HAYES: Now, that's pretty mild condemnation, but you might want to look at the full-fledged campaign being waged by Fannie Mae and Freddie Mac against strategic defaulters...
- snip -
It's unclear exactly how they can tell who has intentionally defaulted, unless they have purchased very good mind-reading software. Nevertheless, they have announced they're going to 'take legal action to recoup the outstanding mortgage debt form borrowers who strategically default...' The announcement goes on to say 'Terence Edwards, executive vice president for credit protfolio mannagement (said) "Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting."'
House Republicans even managed to put an amendment into the recent bill reforming the Federal Housing Authority that would forever ban strategic defaulters from FHA-insured loans in the future. Now, this is really important. Keep this in mind:
FHA loans are generally in low-income neighborhoods. And Fannie and Freddie cannot hold mortgages over $729,000 dollars. What does that mean? It means
this whole campaign to browbeat drowning homeowners isn't targeted at the wealthy folks that the Times reported on, the same people that the Times suggest are most likely to make use of it. No. Instead, we now have a moral landscape in which the wealthy can, guilt-free, walk away from their mortgages and buy a new cheaper home, while the U.S. government wages a propaganda campaign to shame middle-class and working-class homeowners into doing the irrational thing, the thing that will make their personal balance sheets worse.
When companies default on loans or rip up pension agreements during bankruptcy restructuring, we are told that any moralistic chiding is sentimental rubbish. This is the market at work. They are profit-maximizing entities responding to incentives.
But as soon as some bus driver, or accountant, or waitress decides that it doesn't make sense to hand over thousands of dollars over to their bankers for no reason, well, Heavens to Betsy! Call in the virtue police. I remember from childhood here in New York, the old Leona Helmsley line: 'Taxes are for little people.' Well, apparently, so are contracts."
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