If you are underwater on your home loan and can’t afford to make the mortgage payment, give the TBTFs the keys rather than “cooperate” with them. You are better off AND the TBTFs are then forced to write down the value of your mortgage on their asset list.  This helps the country, in the long run.   As Denninger argues, while commenting on this NYT piece,  the current extend and pretend policy is designed to hide the TBTFs financial problems -NOT TO HELP YOU!

This is the reason for “HAMP” and all of the other silliness.  It is not to “protect” homeowners, it is to prevent banks from having to recognize punishing losses that, in point of fact, they should have to recognize due to their own idiotic lending practices.

Treasury knows this – that their entire “TARP” recapitalization and “stress test” game was nothing other than a sham intended to pump confidence so that these institutions could issue stock into the market and try to “rebuild” their balance sheets.

If this didn’t actually hurt the public I wouldn’t care.  But it does severely damage the public in multiple ways, specifically:

  • These “modification” programs in the general sense do not and cannot lead to sustainable mortgages for the vast majority of homes at risk.  The reason for this is simply that the person who bought the house did so at a radical premium to what they could actually afford.  That “premium” was there as a consequence of intentional speculative activity and outright fraud in underwriting that pumped “home values” – premium that has now disappeared and cannot come back by anything short of more fraud!  Therefore these “homeowners” cannot be “saved” – any change that simply reduces payments but doesn’t get rid of the negative equity problem only extends and increases the damage ultimately done.
  • A huge percentage of the people trapped in these loans are cajoled or outright threatened into doing things that are severely against their own interest.  I hear daily of people who have raided 401ks and IRAs to try to remain in their homes and make these “trial payments” or participate in other similar schemes.  Retirement accounts are privileged in a bankruptcy and cannot be taken; it is essentially NEVER the correct thing to do to raid such an account to try to prevent a foreclosure or bankruptcy filing! This sort of underhanded “suggestion” occurs all the time and in my opinion constitutes raw predatory conduct for which there should be felony legal sanction – but of course there isn’t.
  • The artificial propping up of home prices severely damages those Americans who would like to buy a house but cannot afford one at the present price. If you do not own a car, you obviously want prices on cars to be low, not high.  The same applies if you don’t currently own a house – you want prices low, not high.  The only people who benefit from prices that are pumped up out of whack with fundamental values are those who lent money at bubble prices and will lose that money if prices contract, along with those who build more houses at bubble prices and thus skim off unreasonably large “profits.”

The power is still with the people, we just have to wake up and do the right thing as individuals for ourselves.  The right thing is to take full advantage of the law of the land and to ignore pressure and threats from the TBTFs that your credit will be damaged if you don’t work with them.  The truth is this: YOUR CREDIT IS ALREADY DAMAGED AND IT’S TIME TO BEGIN THE REPAIR PROCESS!  Get yourself back on track, forget about government sponsored loan modification farces.  Jacking around with the TBTFs only postpones the inevitable – for you and for them…