That explains a lot.

http://ftalphaville.ft.com/blog/2008/01/30/10576/a-simple-solution-to-subprime-problems/

There’s clever cynical and stupid cynical. The stupid cynical move, I think, would be to be completely tone-deaf to the issue of responsibility and pretend that greed or reckless behavior on the part of borrowers played no role whatsoever.

It strikes me that a politically smarter approach is to acknowledge that the group of defaulters includes both speculating house-flippers who deserve worse than they’re getting and people who used their homes as ATMs in order to live far beyond their means—but also financially unsophisticated working class people who were conned into ‘teaser rate’ refinancing that may cost them a home they’ve lived in for many years. And to propose remedies targeted at the latter but not the former.

As Edwards demonstrates, the pure populist approach just doesn’t seem to be selling all that well—not even in the Democratic primaries let alone the general election.

Am I being cynical? Sure. I learned that from watching Republicans. Turnabout is fair play.

It cuts both ways—most Americans know people who took cash out of their house through refinancing and lines of credit at every opportunity. They also know there were a lot of speculators in the market flipping houses. Propose policies that will bail all those folks out and a lot of ordinary people who were careful with their money, and you’ll make those people feel like chumps and they’ll resent it.

But Americans also know there were also plenty of people who were persuaded by unscrupulous loan originators/scammers to take out mortgages with onerous interest rate resets and prepayment penalties that they could possibly afford. And people will want to see help for people in those situations and will be angry to see them take all the blame for their predicaments.

At this rate (halving every, what, six hours or so?) there’ll only be about fifty foreclosures by this time next month ;}

(I was talking to a broker last month who said that the foreclosure wave was ‘a myth’. I suspect he’s now eating his words, or at least his bonus.)

“Second, most mortgages are non-recourse, meaning that the lender can take the house but cannot recover the debt from the borrowers income or other assets.”

Those two statements are mutually contradictory—as you note, in the U.S. walking away from a house and mortgage doesn’t result in financial disaster. At least not for the borrower. Which explains why this has been so disastrous for lenders and mortgage holders (and holders of mortgage-backed securities). In fact, the bubble was a gold-mine for many people—they repeatedly refinanced their house, taking out tens of thousands of ‘new equity’ at a shot, spent it all, and now can walk away without paying any of it back. Here’s an extreme case of people who managed to supplement their income somewhere between half a million and a million dollars over a five year period:

http://www.irvinehousingblog.com/2007/12/19/heloc-abuse/

It’s worth pointing out that this no-recourse system is also ideal for speculators who made a bundle flipping houses during the run-up. They got to keep any profits they made and turned the last batch of houses they were holding back to the bank (which was not really a big deal since they generally put in virtually no equity).

By the way, UK, you’re next.

Um, you need to rethink this one, Jim.

It seems a review of what the bankruptcy reform bill actually did would be helpful, as you are obviously very confused.

Chapter 7 (liquidation/clean slate) bankruptcy is still available automatically, provided you: (1) Go to credit counseling first and (2) have a household income less than the state “family with 2 children” median (about $70,000 in VA). Otherwise, (if you have above average income), you have to show that Chapter 13 is not appropriate for some reason.

Chapter 13 (5-year restructuring) bankruptcy is still available, on pretty much the same terms as before.

I’ve seen little discussion outside Calculated Risk of legislative efforts to raise the cap on mortgage guarantees, which seems like a really bad idea.