Blame the Borrower, plus Second Mortgage Update

An entertaining article about proposing to amend the FHA Reform Act, put forth by Republicans via a "motion to recommit," a minority-party tool in the House. The idea is that certain rights would be taken away from individuals who choose to strategically default. The Huffington Post is a suspect site, though no more so than the Wall Street Journal, which was referenced by the GOP in their comments.

This is really no better than assuming that every loan from the last several years was fraudulent. My thoughts about this subject have been getting more and more pure in the sense that I cannot blame individuals or banks for acting in their own self-interest. As strategic defaults are becoming more fashionable, it will become a lot easier for individuals to make the decision.

In related news, it is getting pretty tough to close a short sale when there is a second involved. Certain lenders, such as GreenTree and CitiGroup, seem to have policies of automatically insisting on crazy amounts of money that first mortgages will never accept; in the case of CitiGroup, there is at least one example of their demanding that the seller signing a promise to pay $4,500, which is 5% of the sales price - ridiculous.

If these second lien holders ever try to collect on a deficiency judgment - a tool that gives them the right to pursue amounts not paid by the sale of the related property - they are likely to simply drive the borrower into bankruptcy and have nothing but their own attorneys' fees to show for it. Perhaps the deficiency judgments look better on a balance sheet or have a different value as a loss for the corporation. Perhaps this is simply a matter of acting out of spite becoming written policy for some of these entities...