Within The Law: Defending Foreclosures

The Wall Street Journal has a front-page story about attorneys practicing "foreclosure defense," which the WSJ seems to think is a "new" practice area. I don't know. If someone shows up in your office facing a foreclosure, and you take the case, you're a "foreclosure attorney." Still, it's an interesting look into the other side of foreclosures:

The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer's gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.

Lillian and Robert Jackson stopped paying on their home in Jacksonville, Fla., in 2004 when business dropped off at their cleaning company. Eviction might have seemed inevitable when they faced a foreclosure hearing two years later.

But their lawyer, James Kowalski, had the idea of taking a deposition from the signer of the mortgage papers. When a document processor for GMAC Mortgage admitted she routinely signed such papers without being familiar with details of the loans, she was tagged as one of a species now known as robo-signers.

It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner's legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn't.

What these guys did differently is that they actually deposed the people signing documents on behalf of the banks. Depositions - or any sort of intensive litigation activity - don't often happen on the defense side of foreclosures because the defendants lack the cash to fund an aggressive defense. And that's the thing; often foreclosures go through because the homeowners lack the resources to fight, and even if they did have the resources, it would be economically irrational for them to do do.

Still, I would make an exception for homeowners like the Jacksons and, of course, my clients who may have the wherewithal to refinance their loans and make payments at a reduced monthly rate. Banks haven't just been using robo-signers to sign affidavits en masse. They have also been disregarding any and all efforts by the borrowers to refinance. And, having obtained title to properties, they always go for the eviction, rather than allowing the homeowner to negotiate to repurchase. This doesn't strike me as rational either.

If you are defending a renter being evicted for failing to pay his rent, your job usually involves negotiating either an orderly move-out or some sort of payment plan so the tenant can remain in place. I don't see how a foreclosed homeower is all that different in a conceptual sense. But, the banks don't seem to want to do much for them, HAMP notwithstanding. For the Jacksons, they've been able to stay in their home, rent free, for six years. Six years! Does GMAC honestly think this is a good result? The Jacksons also say they're happy to renegotiate, but GMAC is ignoring them and going for the traditional demand for relief from foreclosure: repayment of the entire amount due, an impossible hurdle. Again, how is this a good result?

The fact is that banks have simultaneously rushed to do these foreclosures and then dragged their feet both in responding to homeowners and in moving people out of their homes. In an environment like that, I don't think there's anything wrong with people hiring an attorney and fighting back even if they have defaulted on their payments. People on the right have been pontificating about the sanctity of contracts and following the law; two positions I heartily endorse. But, it's a bit rich for banks to hold borrowers to the letter of the law, and then brush off their own half-assed document handling as "close enough for jazz."

The Invisible Hand: Hispanics Disproportionate Levels of Foreclosures

You've gotta love "studies" as in "studies show..." A phenomenon may be obvious from anecdotal evidence and personal experience, but it doesn't exist in the eyes of the media and policy makers unless there is a "study." Now, a "study shows" that Hispanics in California faced nearly half of the foreclosures that have hit the state since the bursting of the housing bubble.

A review of the damage wreaked on California communities by the housing bust shows that Latino households suffered nearly 50 percent of the foreclosures and that loan defaults are concentrated in the state's Central Valley.

That area, which includes the Sacramento and San Joaquin valleys, features six of the top 10 California metro areas for foreclosure concentrations, according to the Center for Responsible Lending, which released a comprehensive report Tuesday.

No California communities have experienced a higher percentage of defaults than Modesto, Merced and Stockton - each of which had a foreclosure percentage of around 16 percent between late 2006 and 2009, the study found.

"The signature finding of this report, that there is a disproportionate rate of foreclosures for Latinos, is really stunning," said Paul Leonard, director of the California office for the Center for Responsible Lending. "The data shows that high-cost loans correlate with foreclosures and that there was a big presence of subprime lending to the (Latino) demographic and in areas where there are concentrations of Latinos."

Way to go. Of course, Michael Barone and (blush) Free Will were writing about this 18 months ago. Back then you had plenty of sob stories in the media about foreclosed homeowners and - even without explicit mention of race - it was clear that many of the distressed were Hispanics. This article in the NY Times about Washington Mutual's lax lending standards is a classic of the genre with its descriptions of subprime borrowers working as "gardeners," "maids," and even a "Mariachi singer." I don't know, I'm getting a mental image of these folks that correlates with the results of the above ""study."

I don't suppose we won't be reading any studies about how many of the foreclosed are in the US illegally, but I'm willing to bet that illegals would represent a significant percentage of the foreclosed. While the conventional wisdom has targeted banks, mortgage securitization and investment banks as being at fault for the bursting of the housing bubble, the fact is that borrowers were as much at fault as well. Liberals have sneered over some borrowers - namely grasping bourgeois buying Hummers and granite counter tops with home equity loans - but have been studiously quiet about borrowers who probably shouldn't have bought in the first place, yet were able to obtain loans through, at least partially, the ministrations of Fannie/Freddie and their liberal political patrons in Congress.

There's a lot of heartbreak behind the statistics, I'm sure. Hispanic borrowers were no different than anyone else: they wanted to buy a safe and secure homestead for themselves and their families: the American Dream that long predated any goofy government policy about artificially increasing homeownership. But, the fact is that many of them could not handle the financial costs of homeownership, and the rest of us have been left with the tab.

Surprise Party: Fannie/Freddie To Waive Underwater Mortgages?

Everyone is talking about this blog post from James Pethokoukis, who reports on rumors sweeping the DC-NYC network that the Obama Administration is considering ordering Fannie Mae and Freddie Mac to waive mortgage balances for borrowers who are underwater on their mortgages.

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The calculation, of course, is that this would be a bailout by executive fiat timed for "Main Street" to express its gratitude just in time for the November elections. Hard to see how this "calculation" makes sense. It's estimated that approximately 20% of mortgaged homes are underwater, while 80% are just fine. Doesn't it make more sense that the 80% solvent class will be royally ticked off at the thought of taking on the mortgage liabilities for the 20% insolvent? Rick Santelli's original "Tea Party" rant was directed - it can be hard to remember this in the light of the Tea Party's subsequent association with the health care debate and raaaaaacism - against an earlier mortgage relief plan proposed by the Obama Administration.

And typical for the federal government's approach to the financial crisis and the aftermath of the bursting housing bubble, underwater mortgages are not the problem. An inability to pay off the mortgage balance is the problem. If you can make your payments, the size of the mortgage relative to the present value of the house shouldn't matter. As we have all learned, the fair market value of residential real estate is not set in stone. Yeah, the value of your house may be down this year. What does this have to do with its value in 5 years? 10 years? 15? Nothing at all. In fact, the faster the housing market can find a true bottom the sooner those valuations can rise. But, continued interference in the market by the government and its GSE's maintains the status quo: artificially inflated housing values that interfere with the free alienation of property and prevent homeowners from realizing the true value of their homes.

The high school graduates attending Tea Parties understand this instinctively. You need to go to Harvard to learn the opposite.

Bailout 2.0

We're coming up on the first anniversary of the government's bailout of Fannie Mae and Freddie Mac, the first real stirrings of the panic that would rise to a roar after Lehman Brothers fell chaotically into bankruptcy. Well, that was so much fun, Fannie is returning to the well: Fannie Seeks $10.7 Billion From Treasury After Big Loss

Fannie Mae said it will need an additional $10.7 billion from the U.S. Treasury after it posted a $14.8 billion net loss in the second quarter, as rising unemployment led more prime borrowers to default on their loans.

The latest infusion will bring the total bailout for Fannie to nearly $46 billion.

The Treasury has agreed to provide as much as $200 billion to keep Fannie Mae running, and it has pledged the same amount to its main rival, Freddie Mac. Government regulators took control of Fannie and Freddie last September.

The most annoying aspect of this is the persistence of the fiction that Fannie and Freddie are private companies. They are not. They are/were sponsored by the government and blessed with an explicit - formerly implicit - government guarantee of their obligations. They dominate the mortgage securtization market so thoroughly that they could be considered a joint monopoly and the target of anti-trust action ... if they really were private companies. They are - right now - the means by which the government's mortgage relief plan is being implemented. They are a mortgage cartel. A modern day East India Company. A harbinger for what happens when the government provides a "public option," whether for cars, health care, or mortgages.

Real financial reform would include either nationalizing and selling off the FM's or reverting them to their true state as government agencies with commensurate lower levels of pay for their employees, nee' bureaucrats. But there are too many people making money off of the fiction, and too many progressives operating a de facto housing policy under the guise of the free market, so the money pit is still in business.

In the meantime, other Big Shots are somehow making money off of their suposedly toxic assets, which have risen in value. Amazing! Especally when you consider that these were assets used as compensation! My amazement continues to amaze! Credit Suisse Bankers Beat The Odds in Toxic Pay Plan

Credit Suisse Group's novel plan to pay bankers with a brew of its own toxic bonds and corporate loans has gotten off to an unexpectedly strong start, which could put further political pressure on other Wall Street firms to change how they pay their employees.

Late Wednesday, the bank told 2,000 of its top bankers that a $5 billion fund of soured mortgages and bonds -- which it granted as a big portion of 2008 pay -- had returned 17% since January, according to people familiar with the matter.

(insert cynical "The house always wins/where are the clients' boats" comment here)

A Bad Debt Follows A Bad Choice

Lots of praise around the Internets for this story by NT Times Business Correspondent Edmond Andrews, and his financial struggles with high credit card debt and the increasing demands of a sub-prime mortgage. It's written in a "I coudn't believe this happened to me, thus it could happen to you" style. People have been praising Andrews' bravery for admitting something most people in his position would be loath to admit to: that, despite his prestigious job and high income, he actually can't afford the trappings of a middle class life.

This post from Megan McCardle, who sympathizes as a fellow writer living on the budgetary edge is typical: Debt: A Writers Life

This is the bravest thing I've read for a long, long time. For a reporter--an economic reporter--to admit that he's been in the hell of excess debt and unpaid bills that he reports on is a major statement in middle class America. There was a time when America tolerated a certain amount of this in its writers--one reads nearly approvingly of the repeatedflirtations with bankruptcy undertaken by the likes of Dorothy Parker or F. Scott Fitzgerald. But these days, their profligacy, like their alcoholism, is no longer admired, or even tolerated, in the editorial world.

Now, it is true that there are plenty of profligate people out there who got in over their heads buying Hummers and jet skis on a beer budget. But, most of the debtors I see in my practice are in a hole because of a disruptive and/or unexpected event - a major illness, a job loss, the death of a spouse, a pregnancy, moving to San Francisco - that caused their carefully wrought balance between income and debt servicing to go awry, finally leading to the death spiral of increased debt as their interest payments skyrocketed with every missed payment. People don't become overwhelmed with debt because they are "writers" or some such. And in Andrews case, the reason was not his job; it was a woman.

I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love. It was August 2004, just as the mortgage party was getting really good. I was 48 years old and eager to start a new chapter in my life with Patricia Barreiro, who was then my fiancée.

Patty was brainy, regal, sexy, fiery and eclectic. She was one of my closest friends when we were both students at an American high school in Argentina. Back then, we would talk together about politics and books at a coffee shop every day after school. We were not romantic in those days and went our separate ways after high school. But each of us would go through bruising two-decade-long marriages, and we felt that sweet spark of remembrance and renewal upon meeting again in middle age.

(snip)

The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment.

In other words, Andrews was supporting himself, two adult women, and three teenagers on his $120,000/yr salary from the NY Times. He's a little vague about when his alimony payments began, but - reading between the lines - it appears as if his divorce and "reconnection" with the sexyfierceclectic Patty came close upon each other's heels and were perhaps related. Regardless, Andrews was struggling because of his alimony payments, not because of his job or his mortgage.
It's a reminder that, for all the flaggellant talk of "profligate Americans," debts are often not the result of unbridled greed and piggish consumption, but arise from personal circumstances, whether self-caused or arising from life's little Black Swans.

Anarchy for the U.S.

Civil disobedience used to mean Ghandi facing down the British Empire, or elegantly dressed Southern blacks being hosed down by Bull Connnor's deputies. In 2009, it has devolved to  mean "reoccupying the house you were just evicted from" with the active assistance of non-profits: With Advocates’ Help, Squatters Call Foreclosures Home

Michael Stoops, executive director of the National Coalition for the Homeless, said about a dozen advocacy groups around the country were actively moving homeless people into vacant homes — some working in secret, others, like Take Back the Land, operating openly.

In addition to squatting, some advocacy groups have organized civil disobedience actions in which borrowers or renters refuse to leave homes after foreclosure.

The groups say that they have sometimes received support from neighbors and that beleaguered police departments have not aggressively gone after squatters.

Technically, I don't approve of this. The homes are private property, after all. And, the non-profits are aiding and abetting a crime, admittedly a low-level one (why do they get to maintain their tax-preferred status as non-profits?). Still, I'm willing to turn a blind eye to this for now. The banks are hardly innocents. They sold expensive mortgages and too much house to people who couldn't afford them, and then refused to renegotiate terms, preferring to go through a foreclosure, presumably so they could tie a deficiency judgment to the home owners.

But, having out these residences through foreclosure, the anecdotal evidence suggests that the homes are then allowed to lie fallow for months on end. That makes no sense as social good. People are being dispossessed and yet homes are lying empty. And an empty home quickly becomes a blighted eyesore, even in the best neighborhoods. 

As long as regular people, not drug dealers or hoods, are engaging in this form of civil disobedience, I say: more power to them. Our government and financial institutions continue to prevaricate on the extent of bad assets that are weighing down the banks and our economy. The real life effects can be seen in neighborhoods where houses are emptied of people and then left to the elements. That's no way to run a society with pretensions toward justice and morality. Until the Deciders can create a mechanism to unite the dispossessed with rationally priced housing, ad hoc solutions like squatting will be the de facto solution. 

A New Shadow Falls

How things have changed. We used to worry about the Shadow Banking System. Now, there is rising concern about the Shadow Housing Inventory arising from foreclosed homes that banks do not bring to market: Banks aren't reselling many foreclosed homes

A vast "shadow inventory" of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.

Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

No, you would finally have a market price for homes, "Rick." You might not like the price, but it will be a lot more reliable than the bubble prices that you apparently want to maintain so the US can keep up appearances. 

In the Bay Area, foreclosures have mostly hit outlying areas, not wealthier SF, Marin, or San Mateo Counties. Housing remains expensive. Still, there is plenty of "shadow inventory" here, too. 

In the Bay Area, a Chronicle analysis of data from San Diego's MDA DataQuick shows that more than one-third of foreclosures are in shadow territory - that is, they are not registering in county records as having been resold.

For the 26 months from January 2007 through February 2009, banks repossessed 51,602 homes and condos in the nine-county Bay Area, according to DataQuick. Yet in the same period, only 30,823 foreclosures were resold, leaving about 20,000 bank repos unaccounted for.

There are number of reasons given. On a practical level, it's simply hard to work through the inventory. In "normal" years, there are about 160,000 a year nationwide. Now we are doing that much in 2 months. At the bank, they may be motivated by greed or fear. Greed says to keep the inventory off the market in the hope of getting a better price. Fine, but the anecdotal evidence says foreclosed homes quickly become blighted and unsellable. Fear says to defer sales so you don't take losses all at once. So, after two years worth of banks lying about their balance sheets, they are still... lying about their balance sheets! Good grief. 

We have here another example of America's new "Can't Do" spirit. Rather than take losses and allow the market to recover, the banks are keeping housing off market for no better reason than to CYA. It seems absurd to have large numbers of people getting dislocated by foreclosure, while the banks foreclosing on them are sitting on large inventories of empty houses. There isn't a mechanism we can't create to turn dispossessed owners into renters? There aren't consortia of property management companies willing to buy in bulk? 

Apparently not. Instead, zombie banks are supporting zombie homes priced at zombie prices so we can try to bring back the bubble fantasy of rapidly appreciating homes forevermore.

The Invisible Hand

Mysterious forces, neither controlled nor understood at the highest levels of gov't, seem to be moving people out of homes they cannot afford, and are replacing them with enigmatic pod-people: folks who can "pay their bills" and who "saved money to achieve long term goals." No one knows what this may imply for the nation's mortgage relief plans: Falling Prices Draw First-Time Home Buyers

While her friends ran up credit card debt and bought show homes beyond their means, Taina Goldman saved for a down payment. She moved back in with her parents, sharing a room with her young daughter, ate in and worked two jobs

“I don’t live dangerously,” said Ms. Goldman, 42, a nurse. “You can’t live on ‘what if.’ ”

Now, she is reaping the rewards. She and her daughter recently moved into a three-bedroom, two-bathroom ranch-style house, with a pool, after putting 20 percent down and persuading the seller to cover most of her closing costs. She paid $187,000 for a house that sold in July 2006 for $370,000.

Thrift, self-reliance, and waiting for your moment. So crazy, it just might work

Relieve Me From Mortgage Relief!, pt 2

obama's mortgage relief plan, wherein the gov't would "help" over-extended people with their mortgages, has hit a snag: Homeowner-Aid Plan Caught in Second-Loan Spat

The Obama administration's $75 billion effort to help troubled homeowners avoid foreclosure has hit a stumbling block: a fight over how to aid borrowers who have more than one home loan.

The Treasury Department, scrambling to address the problem, is trying to persuade lenders to forgive or greatly reduce so-called second liens. But that effort has sparked a fight between investors who own securities backed by first mortgages and banks that hold second mortgages over how losses should be shared.

In other words, they're trying to figure out how to split the losses on home equity loans, not on the actual mortgage that pays for their housing. Why this is even an option is beyond me. If you have a second mortgage, and can't even pay your first mortgage, you need to find cheaper housing, simple as that. If that means defaulting or doing a BK, that's sad, but that's life. Instead, the gov't seems intent on propping up the most profligate and imprudent among us. 

More Obfuscatory Outrage

Fannie Is Handing Out Its Own Sizable Retention Payouts. It is unclear whether (a) anyone has noticed and (b) whether this will gin up the same level of faux-rage from the political class that abetted this outcome through credit bubbles, market intervention, and bailouts.

Fannie and the other GSE's have been the Democrat's special preserve: a place where they can pursue their goals for gov't induced "affordable housing," make some quick millions, and do it all while keeping a major gov't liability off the books. It is the perfect symbol for our "sugar and spice" approach to governance.

The story you hear about the GSE's is that they were public companies that got in over their heads with subprime loans and needed a $200 billion bailout. And that is true, if that is all you know.

 But, what is almost never spoken out loud is this: the GSE's were once a part of the gov't (born of the New Deal) and spun off to shareholders in the Sixties because their balance sheets were making the federal budget look awful. But even as "private" companies, they benefitted from an almost-unspoken "implied" guarantee that the feds would guarantee the GSE's liabilities. But, if there was an "implied" guarantee, then it was really an explicit one. It officially became explicit late last summer, pursuant to their own lil' Bailout. You might have missed this if you weren't paying attention. And yet the fiction still exists. We are told the GSE's are private companies whose executives must be compensated lavishly, lest they jump ship. I think we should make it official and call them what they really are - civil servants - and pay them as such.

The story of the GSE's is one of the great head fakes in recent history. The shadow bailout enabled by AIG is in the same league, but the goal is the same: to ensure the survival of a broken system for the benefit of those who made the most $$ off of it. The bonuses are chump change (emphasis on the "chump") compared to the high billions in bailout $$ that are explained to voters in a manner that seems to assume they all have PhD's in economics. The bonuses have the benefit of being easy to understand and symbolic of the rip-off that these bailouts represent. 

But, in focusing on the bonuses, we should never lose sight of the true scandal: the bailouts that were passed in an atmosphere of chaotic panic were more harmful than doing nothing. And that the absence of trasnparency in these trasactions - despite the massive tax payer liability they imposed - was a mockery of our representative form of gov't.

These bonuses also have the look of the Four Deadly P's: the Persistence of Peacetime Personnel Processes. Such bonuses make sense if your company is experiencing a downdraft and you want to keep your best people from jumping into the waiting arms of a hedge fund. But that is not the world we are living in.

Meanwhile, here is a memory from a progressive golden age already gone with the wind, when you could grow rich "helping" the poor:

In the spring of 2001, when I was working as a member of the editorial board at The Wall Street Journal, Franklin Raines, then CEO of Fannie Mae, dropped by for lunch...Raines told us about his great work to provide affordable housing. We listened, and then Susan and I objected that his scheme put taxpayers on the hook. Raines said it would not cost the taxpayers a dime. We argued that there was an implied taxpayer guarantee. Credit here goes to Susan, who took the lead in this discussion, and followed up with stellar reporting (more on that here) on the horrors lurking inside Fannie.

What sticks with me in particular, though, is the final scene of that long-ago lunch. The conversation got heated enough so that we continued arguing after Raines rose from the table to go. He was touting his achievements at Fannie Mae; we were fretting that his promises were too good to be true. Susan and I walked out of the conference room together, and watched Raines walk down the hall to the closet where he’d left his coat. We watched him fish out of that closet one of the most gorgeously well-tailored raincoats I’d ever seen. He put on that ultimate designer-job of a raincoat and walked out the door, and as he went, I asked Susan, “How much do you think that raincoat cost.” The gist of her reply (I do not remember her exact words) was: Plenty, and we’re going to pay for it.

An Idea That Is Hard To Resist

Capital Commerce finds a facebook page with a suggestion for The Next Bailout: Cancel U.S. Student Loans. It's an appealing thought.

Some of us have taken advantage of Federal Stafford Loans and other programs, including private loans, to finance higher education, presumably with the understanding that an advanced degree equates with higher earning power in the future. Many of us go into public service after attaining such degrees, something that's also repeatedly proclaimed as something society should encourage. Yet, the loans we've accrued to obtain such degrees have crippled our ability to reap the benefits of our educations, causing many to make the unfortunate choice of leaving public service so as to earn enough money to pay off that debt. ...

As I said, it's appealing. The President and his wife have each complained publicly about the burden that their student loans imposed on them. Certainly, there are a lot of people burdened by tens of thousands of dollars of educational debt, which will follow them through thick and thin. But, without pointing any fingers, I think we also know a lot of people who took out student loans to go on Spring Break.

The business about having to leave "public service" (really, they mean non-profit work. College educated gov't employees do just fine when you add up their pensions and fringe benefits) is probably true, too. But this also hints at the "puffery" that colleges and grad schools - especially private schools - engage in. Their tuitions are always outrageously high. But, they often feed the students a steady diet of lessons about how "public interest" work is the place to be because, for many lower-tier schools, public interest and non-profits are the leading employers who show up on Career Day. And those jobs are too far down the wage scale to allow a person in their twenties to immediately begin making loan payments of the size many face.

Still, I think a no-strings amnesty for student loans would be yet another middle class subsidy that we can't afford, and would involve lower income people bailing out those who are better educated and better positioned in life. Some of us (you might want to sit down) went to state schools, where we were able to get a good low-cost education if we were willing to live modestly and work at part-time jobs. Often, that was born of economic necessity.

Speaking for myself, I spent one year at a semi-prestigous "private university before finishing at San Francisco State. My total expenses - tuition, room & board, etc. - for 3 years at State still did not exceed the thousands of dollars my parents spent to send me to Private U for one year. Why in the world should I now be subsidizing the education of someone who spent 4X more than I did to get the same education? Why should someone with a high school education subsidize the education of his boss? It really makes no sense, no matter how appealing it sounds.

Loan forgiveness may be irresistable, however. If that is to be our fate, could we at least attach some strings to it? Like, say, make 'em work in the Inner City or Outer Mountains for a few years? The Facebook Friends at the linked all pinkie-swear they would be doing "public service" but for their loans. Let's put 'em to work, then.

Relieve Me From Mortgage Relief, pt 2

As a follow up to my previous post RE: the Big Mortgage Plan (BMP), Captain Ed notes that the BMP will extend its "help" to second mortgages, known popularly as Home Equity Loans or "$50K to pay for The Little Princess' Wedding." Sounds "fair" and "helpful."

In a completely unrelated turn events, the Dow has fallen another 3.2% as of 11:30 EST.

Relieve Me From Mortgage Relief!

I am having trouble ginning up the sympathy that the NY Times is trying so hard to establish for this "troubled" homeowner: 

Chadi Moussa lives in a house valued at more than $1 million in Dublin, Calif., in the desirable East Bay area. Unfortunately, he owes nearly twice that much on his mortgage. Mr. Moussa, who runs a used luxury car dealership, is by any definition a troubled homeowner.

But when he looked at President Obama’s housing rescue plan, he saw nothing for him because his mortgage was too high.

“You give $25 billion to a bank, at least they should help people stay in their homes,” Mr. Moussa said. “But once you get to big loans, nobody’s doing anything about it.”

 I swear. If this guy is representative of what average Americans are thinking, then we really are doomed. You have a $2 million mortgage on a $ 1 million house and he wants the government to "help" you?! We're supposed to roll out the tax barrel for the owner of a "used luxury car dealership?" Apparently we are. 

This is simply grotesque. This guy doesn't need "help." He isn't a 90-year old woman with Alzheimers. He isn't a janitor for Lehman Brothers with 6 kids who lost his job. He isn't a retiree slowly dying of a terminal disease. He is an able bodied adult (I refuse to call him a man) who got over extended and can no longer afford the lifestyle he has been leading the last few years. Oh No! Call an ambulance! Such a thing has never happened before!

Then there's this guy:

For Mark Klepper, 50, who lives in Miami, buying a big house was a way to establish credit to start a business. In 2004 he bought a home for $585,000, and watched its value rise to $1.4 million. After refinancing twice, he owes $1,064,000. But the home is now worth a little more than he paid for it, and his income has fallen by 40 percent. He stopped paying his mortgage in January. If he were to continue paying, he said, the drain would crush his business. The government’s plan does not help him.

“I feel if there’s a plan out there, there shouldn’t be a limit,” Mr. Klepper said. “If the government is helping these lenders, they need to take some principal write-downs.”

He asked his lender to reduce his balance to $600,000 and his rate to 4 percent, but so far has made no headway.

Gee, the lender wouldn't knock 40% off the principal on a million dollar loan? I thought everyone got a good deal at the Santa Bank! And way to go on your strategy of "buying a big house to establish credit" to start your business. Only it's supposed to be the other way around. You're supposed to start a business, work your ass off, THEN buy the big house. Again, our taxes are supposed to help this guy? Is he serious? Yes he is. 

Obama's mortgage relief "plan" is inadequate, not just because it is too little too late, but because there are going to be millions of people moaning and complaining because they weren't "helped." And, there will be a small army of non-profits and "community organizers" ready to stoke their resentment and demand their "share," people like this: 

”Even with refinancing and loan modifications, many borrowers will still end up in foreclosure, said Christopher A. Viale, president of the Cambridge Credit Counseling Corporation, a nonprofit agency in Agawam, Mass.

“There’s 10 million households that aren’t being talked about, and they aren’t going to be helped at all,” Mr. Viale said. “They aren’t behind on their mortgages, but they’re putting everything on their credit cards, they’re making minimum payments and paying penalty rates, and there’s no way they can pay off the interest.”

In the past, these homeowners might have refinanced their homes to pay down this debt, but that is no longer an option. “They need reductions of 30 or 40 percent” on their mortgage payments, Mr. Viale said.

For God's sake, if someone's finances are really that shakey, they need to get out of their expensive housing and into something they can afford, whether it's an apartment, a rental, their parent's house, or whatever. If you are "putting everything on your credit cards" you are on the midnight train to the Bankruptcy Court.  Not only that, you will be spending an incredible amount of time and $$ trying to stay one step of your creditors while you frantically try to hold on to a lifestyle that you honestly couldn't afford in the first place. 

Guys like Viale may think that they are "helping" by advocating for relief for troubled borrowers. It's "compassionate!" No it's not. Compassion is telling someone with an unhealthy spending habit and a crippling debt load that they need to stop spending, and work off their debt either through a BK or by, you know, working. It's not fun, I agree. It's much more fun to buy a Hummer on a beer budget and pretend you're rich because your house doubled in value. But maintaining that illusion will not just cripple your finances; it will eventually cripple society if millions get the idea that they can get the government to essentially fund their "middle class" lifestyles. 

People would much rather hold on to the dream of a materially rich life, rather than face the reality that they can't afford it. They will jump at any chance to maintain the illusion and ignore reality. And that's what Obama's "plan" will accomplish. It's little more than magical thinking writ large across American society. 

There's a simple solution to the foreclosure "problem:"  create a mechanism to allow homes to enter foreclosure quickly and painlessly, and facilitate the homeowners finding new, cheaper housing as quickly as possible. No one wants to see mass dislocations, but let's get real. Millions will not be sleeping under bridges because the Evil Bank foreclosed on them. They will live in smaller housing definitely. They might have to sell some of their toys and baubles. Is that a tragedy, Tom Joad Jr.? No, it's not. It's unpleasant, but no one has ever died because they were foreclosed on. But, allowing people to think the gov't can magically make it all better just to avoid some temporary unpleasantness? That is literally like indulging a child. That's no way to get ourselves out of this mess. It's a way to keep the mess going.