Who to Believe?

I am going with Kevin’s analysis here.

May 11, 2008

JINGLE MAIL....Has there been a sea change in the way Americans view the responsibility of paying off their mortgages? Has it become common to simply toss the keys to your house in the mailbox and walk away if you don't feel like making your payments any more? Even if you can afford to? This has recently acquired the status of conventional wisdom, but Michael Hiltzik of the LA Times says there's a problem with this story:

When pressed for the number of borrowers who could afford their mortgage payments, major banks and lender groups could not produce numbers figures.

Nor could the Mortgage Bankers Assn., the leading trade group for housing lenders....Wachovia's [Don] Truslow acknowledged during the bank's conference call April 14 that walkaways were "hard to quantify."....Bank of America spokesman Terry Francisco said the bank had seen indications that some homeowners were taking pains to keep their credit card accounts current at the expense of their mortgage balances....But he said the bank did not have "firm figures" on how many homeowners were unnecessarily defaulting on their mortgages.

....At Fannie Mae, the government-chartered company that owns or guarantees billions of dollars in home mortgages, Senior Vice President Marianne Sullivan conceded that there was growing "folklore" about residential walkaways but said that the phenomenon was more likely connected to investors than people who live in their homes, or "owner-occupants."

"The vast majority of borrowers we find have been acting in good faith," she said. "If they get behind, they are interested in working with their lender."

If this is right, there's been no sea change at all. What there's been is a huge increase in houses purchased by speculators and a huge increase in lenders willing to provide them with mortgages. Unsurprisingly, it turns out that speculators are willing to walk away from mortgages if they no longer look like a profitable investment, but this says nothing about the attitudes of ordinary homeowners. What it says is that banks should be careful about loaning money to speculators.

But they weren't, so now they're trying to construct an urban legend about feckless home buyers who are defaulting not because their loans are resetting and they can't afford them, but merely because they feel like it. Hardworking bankers are just the latest victims of a liberal culture that no longer values personal responsibility, you see.

Maybe. But like most self-serving narratives coming from the moneyed class, you might want to ask for evidence beyond a few anecdotes before you believe it. Who knows? Maybe this one is no more real than that mythical family farmer tossed off his land by a cruel and unjust estate tax. We never did get his name either.

The “Toss the Blame” around narrative is so necessary to keep the Financial Service Industry in business and unregulated that I am going with the “who could possibly believe anything these folks say” crowd. They have been wrong all along and I am willing to bet they are still “wrong.”