I have been working with a young couple for a year now. They have been
up against it. They look pretty typical. They bought an apartment with a
first mortgage and low down payment. Then they made improvements with a
HELOC. He lost his good job and now works for less. She works long
hours and they have a kid.
They are underwater on the 1st mortgage so the HELOC is worthless. Their
monthly cash flow including debt service has been negative for a long
time. They have been paying the mortgage(s) by drawing down more on the
I advised them a year ago to stop the madness. They tried to contact
their lenders for assistance but were told they did not qualify for a
re-financing, as they were current on their mortgage.
I told them to stop paying. But they would have none of that. They had
built up a credit rating that they were both very proud of. They did not
want to lose that. But more importantly they felt that walking on IOUs
was something that morally they could not do. I told them they were
nuts but that I was proud to know them.
I sent them a link to last week’s Barney Frank letter to the big banks
telling them to write down non performing second mortgages. I sent them
the link for the BoA story and their program to write down principal for
delinquent mortgage debt.
They called just now. They made up their minds. They will not pay either
the 1st or the 2nd this month. The “entrance fee” to getting the debt
relief they need is to not pay any longer. The cost will be a tarnished
credit. They no longer care.
Does this story mean anything in the Macro Big Picture of defaults? I am
certain that it does. A rising trend is about to become a rogue wave.