The Benefits Of Contract Abrogation According To Mark Zandi: 6 Million People Not Making Mortgage Payments Frees Up $8 Billion Each Month

Tyler Durden's picture

We have disclosed on numerous occasions how excess refunds by the Federal Government despite subpar withholdings is goosing up consumer spending. Now we hear from none other than Mark Zandi of Moody's Economy that the government's tacit encouragement for "homeowners" to not pay their mortgage dues is freeing up $8 billion each month that is artificially increasing consumer spending and iPad preorders. And with banks not marking anything to market, all these houses that generate no cash flow are still marked at 100 cents on the books. If you ever needed a justification to not pay your credit card, your mortgage, or anyone else you owe money, now you know - contract law in America no longer exists. Just stop paying everything. And please dont save. Saving is for non-banana republics. Remember - the market is never wrong. And nobody can remember when was the last time we had a downday. So all must be well.

From Diana Olick's blog:

I opened up a big can of debate Monday, when I
repeated some chatter around that consumer spending might be juiced by
all those folks not paying their mortgage

They have a little extra cash, so they're spending it at the mall.

Some of you thought the premise had some validity, others, as is often the case, told me I was an idiot.

Well after the blog went up Erin Burnett put
the question to Economist Robert Shiller, of the S&P/Case Shiller
Home Price Index, during an interview on Street Signs.

He didn't deny the possibility, and added:

"In some sense there might be a silver lining in that."

Then I decided to ask Mark Zandi, of Moody's, who will often shoot down my more ridiculous theories.

I asked him if this was a crazy idea:

No, not crazy. With some 6 million homeowners not making mortgage payments (some loans are in trial mod programs and paying something but still in delinquency or default status), this is probably freeing up roughly $8 billion in cash each month. Assuming this cash is spent (not too bad an assumption), it amounts to nearly one percent of consumer spending. The saving rate is also much lower as a result. The impact on spending growth is less significant as that is a function of the change in the number of homeowners not making payments.

I'm not sure I would say this is juicing up spending, but resulting in more spending than would be the case otherwise.

Many of these stressed homeowners (due to unemployment) are reducing their spending, just not as much as they would have if they were still making their mortgage payment.

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girl money's picture

Mark to market, anyone?  Ohhh, the unintended consequences of rewarding bad behavior at the corporate level.  As goes Wall St., so goes Main St.

I hope most of these purchases are on credit cards with the TBTF's and we will, in the end, see justice, as the ones who walked away from their mortgages also walk away from their bills.  After all, what is there to seize?  A used iPad?  Ewwwww....


Fyodor Does DF Ski's picture


"A used iPad?"

Not bloody likely I'm afraid... 

umop episdn's picture

I'd like to apologize in advance...


"A used Max-iPad?"

I'm afraid is likely bloody...

NoLongerABagHolder's picture

Not that it will matter in this FUBAR market..... but the DOW just kissed the weekly 200 MA.

In normal times - we would get a pullback here........ most likely this time - we go through it like a hot knife through butter.

whatsinaname's picture

well Pat Quinn just extended the retirement age for pensioners in (ILL)inois.

HarryWanger's picture

Good post. And furthers the reasoning to buy stocks. Until that easing ends and the Fed takes money away, you HAVE to buy. It could be a long way up (all time index highs) until that changes.

B9K9's picture

I could be wrong, but my impression is that average ZH space monkeys well understand the market dynamics of which you speak. The issue isn't one of knowledge, but of concern for a country & way of life that was built on certain fundamental values: liberty & freedom.

ZH is full of analysts, such as myself, who began drilling into the type of information contained in this post long ago. There is no end to the efforts both the Fed and are willing to undertake to extend & pretend until some type of economic miracle occurs.

If you take a moment to peruse many of the comments (and snarky TD posts), you may notice most share this same sentiment. If you want to cheerlead and promote market manipulation without any hint of irony, may I suggest you take your ass elsewhere, perhaps Yahoo or some other tout sites?

RichardENixon's picture

I suspect he'll wake up one morning and find his "investments" have gapped down 50% overnight, he can't get his broker on the phone, the TD Ameritrade website has crashed, he can't use his ATM card, the bank has sealed his safe deposit box, and the grocery store has been looted. And I'm wearing my rose-colored glasses today, by the way.

Ned Zeppelin's picture

Don't forget his pants down around his ankles, and some nasty smelling ooze coming out of his abused and sore, chafed nether aperture.

Dburn's picture

I think he'll be woken by a CSR for Ameritrade telling him why they are selling him out in the pre-market when bid and ask are 1-2 points apart. "Sir your margin has reduced your equity to 7% in your account and we just can't afford to let it go negative. We are sorry, but we just don't have time to let you wire money in as the banks don't open for hours if they open at all. No we don't take Paypal" "Eh what does she mean 7% equity. you mean my retirement lost 93% wait 98% she sold it to a guy bidding 10 points lower. I have nothing therefore I am nothing. Fucking ZH , it's all their fault, those bastards, I 'm going to call my...wait, I told him to buy this stuff too..."

Dirtt's picture

Call me the Duke Of Snark. Just getting started.

Call us stupid but we are taking the high road and playing by the rules and not playing the game. Payback is a bitch. I'd rather pay the price that I understand now - mortgage, cc's, - spend less and be happy doing it.

Those who'd rather 'pay it backward' are treading in uncharted waters without a lifeboat. Like I said...payback is a BITCH.

AR15AU's picture

Actually, I don't have to buy... and I choose not to.  Gains could be 1000% but I won't participate in that kind of a blatant ponzi.  Choosing the moral high ground is not easy when everyone is debauching themselves, but I sleep well at night.

tmosley's picture

PMs are just as likely to rise, and don't have the counter-party risk, or the stench of rapidly decaying ponzi on them.

Internet Tough Guy's picture

PMs rise in real terms, as they have against the stock market for the last decade.

i.knoknot's picture

isn't protecting your wealth (even in a corrupt system) protecting the probability of your continued survival, and therefore the survival of your kind (thinking, involved, caring, analytic, etc.).

i *hate* the current choices, and due to fear, *not* principle, i too am essentially out of the game. and missing the rewards.

e.g. if everyone in our realm were to buy a 'safe' asset, regardless how manipulated, and be the only ones with assets after 'the crash', would there be any moral problem with having resources with which to rebuild?

i mean this question in the most constructive way.

i recall a few years back when the 'religious' followers of Amy Grant (christian singer) were pissed-off because she went mainstream and therefore, sold out.

her response was pretty simple, when she said "i can help a lot more people as a mainstream artist, than as a starving christian singer" (paraphrased...)

i would even wager that george soros is a huge fan of progressive wealth redistribution ideologies... and is using the very system he eschews to destroy it. or perhaps we could cite the middle-easterners using american dollars to destroy america.

while non-participation is a great principle, is it the best course of action?

again, i often say "by picking the lesser of two evils, you still get evil", so i take your response seriously. i don't know the answer, but if i'm completely out of the game, i can't change much in the game.

twotraps's picture

totally agree with you, hard to watch it grind higher with so little invested but these moves put everyone to sleep.  If it kicks off and heads lower with some violent ranges....will people average down because in the end everyting rises or will they remember last year and liquidate, taking what they can from the mkt today?  If that thinking catches on we are well through the march low of 667.

Vulgus Porkulus's picture

Do you think we'll hit the wall on oil before reaching stock highs?  Or will the Government come in and subsidize fuel costs for those 'temporarily' unemployed, sell oil futures etc..etc..

B9K9's picture

The basic road map laid out over a year ago is pretty clear. I'm not sure consumer oil subsidies are included - the focus is more on production. That's why we have multiple carrier groups, dozens of submarines and thousands of occupation troops deployed in the ME.

For any who are interested, here's a brief recap of the extend & pretend strategy being carried out by the Fed, and its proxy GSEs, Fannie/Freddie:

  1. Fed facilitates the support of Treasuries, MBS and equities via QE and doG knows what else.
  2. controls MSM, and (deficit) finances welfare & warfare state.
  3. Fannie/Freddie provide the storage for defaulted mortgages.

OK, add it all up and here's what we have:

  • Treasuries - federal & state governments still operating
  • MBS - home prices maintained
  • Equities - stock market highs
  • MSM - green shoots propaganda + stimulating entertainment
  • Welfare - people zombified with steady welfare, UE, food stamps, etc
  • Warfare - DoD satisfied with continued purpose & financing
  • Fannie/Freddie - unlimited backstops allows 6+ million homeowners to substitute consumer purchasing for mortgage payments

Feel free to add anything to the list. As you can see, there isn't really any vehicle, other than nuclear powered naval craft, to support/subsidize or enforce any $USD/BTU ratio higher than what we currently are experiencing.


Cognitive Dissonance's picture

With the Ghawar water cut averaging over 50%, trouble is brewing.

velobabe's picture

simmons at least is telling the truth when he says: Shale Oil Plays Are Also A Hoax

and horizontal drilling. fracking in western colorado's hovenweep lewis mancos field. use so much water to extract this shale shit. they have to drill down two to three hundred feet. just to inject chemicals to get this crap out. this is worst than what we did to the native americans. i had shale water as my domestic use water source. there isn't any water. we have peaked water use. the colorado plateau is getting pimped just like us people by government and corporations. i get so angry at it all. destroy the land, ocean and people all at once. BOOM than it is over.

“Houston, We Have A Problem” is beyond question.

How we reduce our addiction to oil is simple:
–End long-distance commuting
–Grow food locally
–Ship people and goods by water first, then light rail, then double track rail, with truck use as last choice
–Produce goods close to where they are consumed

buy a bike†

Ghawar water cut? what is this?

Cognitive Dissonance's picture

"Ghawar water cut? what is this?"

This 2004 article will help explain. The problem has grown much worse since then.

When an oil field is young and hot like you, oil comes out under high pressure. If the field has been mismanaged (like many of the Saudi Arabia (SA) fields were in the 70's) or is just plain used up, more and more (ground) water mixes with the oil, mostly because mature fields have water pumped under high pressure into the field to drive the remaining pockets of oil to the extraction wells.

Once the water/oil mix (the water cut) passes 50%, the field is in trouble. When it hits 80%, the end is very near. Separating out the water is very expensive.

Saudi Arabia would like the world to believe it has unlimited amounts of oil to pump and pump and pump. The illusion is full of holes and no new giant field (let alone super giant) have been discovered in SA since the 50-60's depending on who you trust has the most accurate info. SA considers it's oil info a state secret, meaning they don't want the world to know they are scraping the bottom of the oil barrel compared to what they had in the 70's. 

velobabe's picture

honestly CD i just cry. really, i walk around like a zombie lately. i had no idea any of what i have been reading on ZH for the last five months was true. i mean, i knew what has happened to me financially for the last 15 years. but this political new world takeover has just humbled me. ZH and it's witty members just put everything into perspective for me personally. i just care so much about the wildlife and nature that don't have a spokesmen. i need to quit†


i just hate getting so emotional over my realizations. cause i was so, had my head in the sand.

probably literally.

Cognitive Dissonance's picture


I've heard the cries of anguish in your voice over the past few weeks and I heart goes out to you.

You are experiencing trauma similar to what you would feel if you lost a child or spouse or any close friend or family member. Take your time, let it happen, allow it to take its course and it will pass. Don't forget your extended family here on ZH, a great source of inspiration and comfort during your difficulties.

The next few years will require people who have experienced severe loss and pain rather than those who are striking out in anger and frustration and are looking for retribution. The most important emotion one can marshall for the coming troubles will be empathy, not for the bastards currently running the world, but for the walking wounded who will soon be streaming into help centers like ZH.

WaterWings's picture

I found my mom and dad here: MsC and CD.

velobabe's picture

maybe i can find a husband¿

Miles Kendig's picture

You most certainly could do far worse Wings.  Lots of wisdom to be found there.  Velobabe, remember to love, be & trust yourself first.

reading's picture

When someone tells me I HAVE to buy, I am CERTAIN it is time to get the hell out.  

Ned Zeppelin's picture

Is this Kool-Aid salesman for real?

"Buy, buy, buy. All the way, babeeeee. Why? Great question! Because the market says so. Don't be a dummy, just 'cause there's no rhyme, reason, logic or science to it.  It's a trade, man. Get with the winning team. Don't be a loser.  You just don't get it. The market is telling you what to do: buy anything.  Get it? Are you deaf?  The time is now. What time is it? Time to buy!"

good grief. 


Dburn's picture

Seems like the penny stock promoters are out in force. I'm pretty sure this was a prelude to the great Nasdaq dump. I'm just not sure when I noticed a flood of penny stock emails. Was it 2 Months befor March of 2000 or a Year before. Am I feeling lucky today? We'll am I ? Punk!

jdrose1985's picture

Alright hotshot (Harry) it's been about due time to pump your brakes on the CNBC regurgitation act. I rarely waste my time or that of others with comments such these but you're detracting from the experience of this site with your nonstop drivel and acting like you're such a brilliant person.On a side note, we all know the retail guy is finally going in as this ass hat has finally come to the realization that he better get in "before it's too late".

After his 3x leveraged buy and hold trades wipe him out he can go out into the real world and  see what 17% underemployment looks like first hand and hopefully come back with something useful and meaningful to report. However, I won't be holding my breath.

HarryWanger's picture

I've heard the same drivel since August '09. Word for word. Same as I'm hearing now. And we keep going higher. It's not cheerleading, nor bullish nonsense but solely what the market is giving and telling us. And it's telling us that all the Fed b.s., etc. is driving us higher and higher. And, with exception of a few shallow pull backs, will do so until we battle for new highs. 

AR15AU's picture

You just come off like a Las Vegas condo salesman circa 2006.  No offense.  Its just humorous.

HarryWanger's picture

Junk? Are you guys crazy? I'm throwing in common sense here regarding equities. I'm not cheerleading and see many problems afoot. However, to think the market will crash is ridiculous for all the reasons posted at ZH. 

If the Fed keeps pumping money, and they are; if people continue to walk away from debt, and they are; if inflation picks up steam, and it will; the market will continue to drive higher. That's not junk. That's not cheerleading, it's common sense.

We haven't had a run like this since the July low when we rallied unabated about 17% SPX. Right now, we've done the same off the January low to 16% higher. 1222-1224 puts us at 17%. There's your chance for a 4% pull back as we saw in mid August '09.

Common sense. You and everyone at ZH may have a hundred reasons why the market should tank but those same reasons are responsible for its current run.

B9K9's picture

Hey dipshit, every single reader here understands what the fuck you are saying. It isn't insightful, it isn't useful, and in fact it's just a big fat nothing burger. Guess what? We're still fully invested (blame the wife) & we're still making mortgage payments. My family lives well within its means & our house is still 100% over water.

But that doesn't make me keenly aware that the Fed + cannot continue this insane course of action. If 6+ million former mortgage paying homeowners are currently enjoying a free ride, how long will it be before another 6+ million wise up & join the fun? If Fannie/Freddie combined are hemorrhaging $100+ billion/year, exactly how long can this continue at its present rate, much less double?

It's not a matter of what you are saying - it is all undoubtedly true. It's just that your posts lack a certain, shall we say, je ne sais quoi. As Stein said, 'There's no there, there". Most people who achieve your level of banality typically choose to remain anon.

EscapeKey's picture

There's an element of truth in this. The fact is that all asset classes move higher simultaneously - bond yields and equities are usually one or the other; and to compound this, gold moves up as well.

This all makes sense if inflation is knocking on the door.

Headbanger's picture

So doesn't that make it "Attack of the Sub-prime Zombies II - The Sequel"??

homersimpson's picture

That story alone guarantees the ^GSPC will hit 1500.

Mako's picture

Nobody wants to borrow from you Tyler.   This website is starting to get to the point where it's nutballs that don't understand easy Math.

You want people to save?  Who are you going to lend to?  What people consider savings is actually lending, yet there is no one to lend to. 



B9K9's picture

Mako, please relax & take a chill pill dude. You're just beginning to get people to understand what the hell you are talking about. Smart, math oriented engineers like Mish & Denninger admit they were never exposed to the fundamentals of exponential math as they pertain to compounding principle+interest.

I have found that some find useful the following, short description:

The law of exponential math dictates that compounding principle+interest can never be (re)paid. This results in the forfeiture of real property & productive assets pledged as collateral, reducing borrowers to debt peonage. Systemic failure is a design feature of the credit-money system.

i.knoknot's picture

but who gets the real collateral in the end-game? that's the quadrillion-dollar question.

the usual suspects in that equation are the ones defaulting this time! :^)


tip e. canoe's picture

not all of them and not yet...which is precisely the point.

tmosley's picture

To those who posess the silver and gold shall go all the capital in the world.

False_Profit's picture

but who gets the real collateral in the end-game?

...rothschilds, et al, think they will...

  • they have already encumbered the au at ft. knox
  • they are adding digits to their computers to add "bad assets" to their balance sheet
  • they are buying the treasury debt
  • they are being given our income taxes as interest on the debt they own
  • ...und so weiter

...but they are scared

...the conflict as i see it, will be between the banksters and the progressive tyrants...and the tyrants will confiscate the property of the banksters in the interest of forming a true "centralized bank", when this battle is over, the progressives will have vanquished the banksters to form a more perfect "USSA"... 

Divided States of America's picture

I guess I should not pay the mortgage or credit cards but use the money and plow it into the stock market, preferrably companies like C, ABK, BAC, FNM, FRE, COF. Makes perfect sense.

Internet Tough Guy's picture

Heh, people who are about to be out on the street are blowing their dough. This supports prices which sucks for the unemployed and the rest of us who should be enjoying some benefits of deflation (ha,ha). So everyone gets to go broke at once, when the losers finally get kicked out of their squats, run out of unemployment, can't afford $10 gas, can't live in their ipad...