Bringing Moral Hazard To A Deadbeat Near You

Tyler Durden's picture

Tonight's feel-good story of our time is a desperate stroll through the reality of the US housing market for millions of individuals (as opposed to the hope-driven must-say-something-positive spin the home-builder CEOs have been spewing recently). Notices-of-default jumped 33% in August, a nine-month high and largest month-over-month increase since August 2007 and it is becoming increasingly acceptable to walk away from contractual agreements as strategic default becomes the New American Dream.

Fox Business runs the story: The New Face of Foreclosure: Strategic Defaults:

"There are 3 million to 4 million seriously delinquent mortgages that under normal circumstances would be in foreclosure but have been kept out by procedural delays and paperwork problems," says Rick Sharga, RealtyTrac senior vice president. The recent spike in foreclosure starts suggests lenders are "hitting the restart button" on cases that were delayed by documentation problems such as robo-signing, he explains. surveyed several hundred of its clients earlier this year, and just 23% said they had previously shirked a financial obligation. "The people we are now seeing are nearing retirement age, who never missed a payment on anything in their lives," says Jon Maddux, co-founder and CEO of the Carlsbad, Calif., firm. "They are trapped. They can't sell or get a modification and they need to downsize or move for a job."


Attitudes toward default have also shifted, Maddux says. "Back in 2008 people were very emotional, very scared, in disbelief or denial," he says. "Now they are simply fed up. It's a very calculated, black-and-white business decision. People feel very relieved."


A more widespread understanding of the consequences of default may be a factor, says Brent White, a University of Arizona law professor and author of Underwater Home.

And an example of the justification - for better or worse:

"I was looking for a way to get back to a larger city, and this was the only way I could get out of this house," says Kessler, who paid $800 to to help guide him through the process known as strategic default.


"I don't feel guilty at all about walking away from the place," he says. "The banks really did it to themselves. They made a ton of money with me over the years. I owned four or five houses. But I don't think I'll ever buy another house. I'll probably just rent until they put me in a nursing home."

So, we have dramatically bad unemployment in the youngest age demographic, middle-age demographics have seen net worth crushed in the last few years and are lucky to have a job, and now the elder demographic is increasingly opting for strategic default. All-in-all, not such a rosy picture (but but corporate profit margins are at record highs).

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Ahmeexnal's picture


Goodbye bankster thugs!

CrazyCooter's picture

Sounds great, but because banks own Congress, the only outcome is really nasty inflation.

Banks, on paper, will be made whole. Prepare accordingly.



Cliff Claven Cheers's picture

Love your insight Cooter. Keep on keeping on.

oobrien's picture

These are scary shit-your-pants times.

And I don't see us getting out of it--unless we can manufacture WWIII.

What a pisser!


dlmaniac's picture

A more accurate name should be

jeff montanye's picture

these debts will never be paid.  until this is admitted, the debts restructured (principal eliminated, bond and mortgage holder haircuts taken) and counterparty transparency restored, there will be no sustainable recovery.

nmewn's picture

Exactly a normal world this is how its done.

But in their interconnectivity, they can't allow that. So the devaluation will continue until faux balance. The fact that what is paid back is worth less never seems to cross their minds. 

Its as if they think fiats are still backed by something of real value.

Paradoxically, the thing they do back it with now (faith & credit), the thing they put their trust in & value the most, is being destroyed right along with the currency.

A race to the bottom, insanity doesn't even properly describe on

MachoMan's picture

So why is there an all or nothing approach to requiring financial institutions to recognize these losses?  Why can't we get some middle of the road approach, e.g. babystepping them into write downs by requiring X amount of losses to be realized over Y years?  If we had done this from the beginning, we'd be quite a few years down the road to resolving the issue...  and people would probably be less pissed at the amount of bonuses taken because it would necessarily mean certain death to the institution if a solvency issue arose down the road.  If we have the power to step in and prohibit mark to market or change capital requirements, etc., then we have the power to do whatever...

Seems like there are plenty of ways to go about it...  just that no one wants to brainstorm because no one really wants to fix it.  The neat part about fighting gravity though...  it always wins.  Doing nothing, in this case, will still be a losing affair.  I'm just curious as to how much pain we'll have to go through waiting for natural forces to "fix" the problem.

Nascent_Variable's picture

Strategic default is a calculated middle finger to the banks, and I support it whole-heartedly.  Bank losses only get passed to taxpayers directly through bank bailouts.  The public doesn't have the stomach for another direct bailout any time soon. If Washington tries it, they will only hasten the guillotines. 

As for the Fed's infinite money-printing, that issue has gone way past mortgages at this point.

jdrose1985's picture

Uhhh...what are the banks losing, exactly? The note was paid in full from the signature on application for

You all have no clue.

MachoMan's picture

Unless the loan came directly from the FED or initial lending source, then the banks are going to have to beam the scratch back to the mother ship.  While technically it is correct to say that "the banks" created the money out of thin air, this broad brushed approach misses the interchange between the parties (fails to recognize that same loan is actually a liability on many financial institutions' books, and probably a net liability at that in this underwater day and age).

Nascent_Variable's picture

By all means, please explain how losing an interest bearing loan on the books does not affect the banking system.  Also, please explain how losing perhaps decades worth of interest payments on that loan doesn't affect the banking system.

Even if the mortgage is sold, it is still within the system, and in fact, is most likely leveraged heavily, making the losses to the system even greater.

I'd like to know where I'm wrong.  No sarcasm.  I'm here to learn.

Jumbie's picture

The loan is lost, and the title is gained.

The decades of interest are not lost; past payments are banked, future forgone payments are mearly put off at negative interest while the market adjusts.

The 3 card monty played by shuffling mortgages and skimming 1% each time is the problem, and the heavy leverage is the source of profits and bonuses (inaddition to the CDS sold on top of the bundled mortgages). The "system" looses heavily, is bailed out by taxpayers, and those who designed and actively participated in the ball-under-the-cup game retire to St. Maartin.

The misconception here is that the system is somehow supposed to be working in the best interest of taxpayers/mortgage owners, when it fact it has become a giant skim operation.

Jumbie's picture

Not quite; since the poor don't "own" houses (sorry, meant "own mortgages") and the richest don't pay taxes, the middle classes are shifting the burden between themselves. All this by making what top employers would consider a Good Business Decision, taught by every mBA school in the country: The Doctrine of Sunk Costs. Open pit mine not producing? Forward prospects unfavorable? Spin it off to a new corp and abandon it - pure win.

Banks are able to take full posession of real property at negative real cost and sit on it via mark-to-myth, negative interest and other welfare, and so have no incentive to relenquish any part of the title until inflation reaches desired levels. It worked well for the largest banks in the '30s, and the acknowledged expert of the time ;-) will see that it does again.

Synopsis: the poor don't matter here, the working schleps are helping drive more of each other into the poorer classes by increased tax burdens, and the banksters take title to more of their land and property by printing money for themselves, FTW.


Jasper M's picture

I'll take the 'under' on that trade.
Jesus of Nazareth couldn't inflate this pig.

Temporalist's picture

I never read that was one of his bread and butter miracles...

MayIMommaDogFace2theBananaPatch's picture

Sermon on Mount = 5000 loaves of Back Bacon. (give or take)

jeff montanye's picture

perhaps srs is the etf for you.  interesting three year weekly chart.

AldousHuxley's picture

Even real casinos are losing money these days and resorting to tried and true method of ponzi schemes:

Online poker site with FBI logo on the home page:


What is not a ponzi these days?

caerus's picture

ponzis are so hot right now

AldousHuxley's picture

Get this...Charles Ponzi's scam company was called SEC: Security Exchange Company

jimijon's picture

That is why he should be nominated for a Nobel in Economics. Let's admit it. He influenced more businesses and banksters than any bullshit University of Chicago bs artists. I even have a form... maybe I will make a website to gain signatures.


suckapump's picture

Cooter, lest you forget, most of the banks don't lend any of their own money anyway. These are all sold as various asset-backed securities guessed (in the form of pension funds, 401k funds, other retirement funds, guarantees on Fannie/Freddie mortgages, etc.).

Remeber that (through Fannie/Freddie) we are forced to be responsible for managing something like 90+% of all residential mortgages (in the form of MBSes).

Thank you Uncle Sam.

fajensen's picture

"Thank you Uncle Scam."

- there, I fixed it for you. :)


I think I need to buy a gun's picture

for the record on whats being 7th grade daughter came home from school and told me Andrew Jackson was the worst president. Thats what is being taught in the schools circa 2010.

Moe Howard's picture

To the Banksters, he was, and they control the schools.

tarsubil's picture

I mean, are you 100% serious? Really? If so, I don't have much hope for this country.

Silver Dreamer's picture

Well, they teach that Lincoln was the best, and we all know how he trampled the US Constitution and was a complete Tyrant.  Hell, the man's memorial is of him sitting on a throne for a reason.

Calmyourself's picture

My 11 year old came home yesterday and told me CNN student news told him the Presidents Buffett plan cuts spending and helps people Pffft...  

GoinFawr's picture

Your daughter is such a lib. After all, anyone who thinks that ol` Sharp Knife`s penchant for fashioning his horse's livery out of human skin outweighs his advisors` hard money policy is so obviously a bleeding heart.

Personally, I don`t care how many `whelps` he/she had flushed out of their `dens`, or the number of human noses my head of state cuts off and keeps as trophies, just so long as he/she promotes what I deem to be sound monetary policy and has decent speechwriters; you gotta take the good with the bad.

Unless, of course, I find out he/she has had extra-marital sex, in which case I become incensed to the point where impeachment can be my only relief, because adultery makes the baby Jesus cry.

"America. A place for Americans"

Shock and Aweful's picture

I thought it was "ANDREW JOHNSON" who was the worst president ever...

I was always taught that it was always a toss-up between him...and Rutha"fraud" B. Hayes

Hell, kids in school today only are told the cute little stories about American History...and it is never really explained to them in any detail the back-story on why certain things happened the way they did, or how that has implcations on their lives today.  

I can guarantee you that your duaghter was not taught anything about Andrew Jasckon's life-long fight against the central banks....or how they tried to assasinate him....or heaven-forbid...WHY he thought that the creation of a central bank posed more danger to our nation than any standing army in the world.

Kids are taught ONLY the history that fits into the modern-day, pro-corporation narrative that has been pre-approved...the curriculum that is being taught, in regards to history and government is almost is actually WORSE than not teaching them anything. 

Talk to a high-school kid sometime and ask them about the issues that caused us to fight the British...they will probably regurgitate something about "taxation without representation" (if they were even paying attention that ONE DAY it was covered)....or ask them about the civil war...if you are lucky, they MIGHT get the century it was fought in right.  And don't even think about asking them anything about a bill becomes a law, what the Bill of Rights says....or, heaven forbid, where our money comes from, and why it is that way. (most kids have heard stories about all the gold in Fort Knox and think that the money in their pocket is somehow tied to that)  Hell...a vast amajority of adults have no concept of our monetary system. (that is the real story of the 20th century...and you never hear about it - anywhere)

I truly believe that it is by design that our kids are being taught complete bullshit.  Afterall, our masters need a docile and compliant that will not revolt against the that does not want to lose its comfortable way of life by rocking the boat.

  When you have a society that does not know how things have been and are being end up with a nation where 85% of high-school aged kids "supported" going to war with Iraq in 2003...but only something like 15% of that same group could point Iraq out on a map....

I say it all the time...and I truly believe it....

We are totally fucked...and I don't mean that we are fucked in the short term and things will get better.... I think we are fucked by design and that shit is gonna get slowly worse and worse for a long time going forward too. 

Michael's picture

The second tsunami wave of foreclosures, as expected, from mid-prime and prime mortgage re-sets and re-casts are hitting our shores right on schedule.

It's almost as big as the sub-prime debacle.


Michael's picture

Just watch this shit if you want to know everything that's fucking wrong with our country and the rest of the fucking world.

best of walstreetpro2 (greatest fuckin hits) - 1 of 3

best of walstreetpro2 (greatest fuckin hits) - 2 of 3

best of walstreetpro2 (greatest fuckin hits) - 3 of 3

Michael's picture

There should be a walstreetpro2 DVD you can buy with all his episodes, uncut and un-edited.

Michael's picture

walstreetpro2 is like the Studs Terkel of our modern times.

Michael's picture

So many people are afraid of 2012.

Solar Max occurs around 2012. Except this 26,000 year Myan calender cycle ending in 2012, the Sun is not behaving is a typical manner. Solar Max in 2012 will be but a whimper of previous episodes. Is the Creator smiling on us?

"Part of the 2012 mystique stems from the stars. On the winter solstice in 2012, the sun will be aligned with the center of the Milky Way for the first time in about 26,000 years."

j0nx's picture

I always assumed that the reason WSP2 disappeared was he got arrested by the SS or something. He just dropped off the face of the earth 2 years ago for no apparent reason. His vids were pretty racey to a few politicians and maybe they sent the SS goons after him.

MayIMommaDogFace2theBananaPatch's picture

He has a way with words!  (and a ballbat)

He should sell trinkets out of the debris from his tirades.

Michael's picture

Sorry. I didn't expect to have an audience this evening.

Mentaliusanything's picture

Leave Mick alone, I once thought he was a useless waste of Oxegen. But I was wrong. He really has some points that are well thought out and deeply pertinant to what is unfolding.

OK, put it this way, he was a prick but now I see just a reformed sweet Putana.

Change your Avitar, and you won't smell like a Hells Angels week old armpits.

Pandas are popular .... bitch

FreeNewEnergy's picture

Thanks for the links, Michael. Made my morning.

johnQpublic's picture

just wait til the obamacare 4.2% sales tax on homes kicks in....seller pays this (starts 1 jan 2012)

if we take a 25% loss on the sale of our home(most likely loss), then we'd need to come to the table with almost 13k just to pay this cost, not counting normal closing costs

thats normal middleclass home price here in delaware, one mile from Pa. line(close to philly)

not even a mcmansion

just a '79 built 2000 sq ft home

800 bucks to walkaway ,or 13k to obamacare

thats us walkin' away

wonder how long it would take them to realize we'd left

we have still never missed a payment, but work calls for a move, and the math doesn't care what we choose to do

so sell by dec 31 or walk

dont even know if its worth calling a realtor

they will want 7%, and thats net zero, or come to the table with cash as it is

what would you do?

cue Pantera "walk"