I've previously posted on my dislike of the notion that it's acceptable for homeowners who can afford to make their monthly payments but refuse to do so to walk away from their homes simply because they feel like it.  They made a bad decision (or decisions if they took out home equity loans based on the assumption that the value of their homes would never fall) and should have to bear a major part of the total costs involved.  Walking away from the obligation will increase the costs that I and others who are not in this situation have to pay the next time we try to buy a home.  I want that externality captured in a significant way to make it less likely that it will happen.

An interesting article opinion piece in today's New York Times Magazine says that it's okay for a homeowner to walk away from a mortgage if his or her home is underwater.  His reasoning is that it's okay for homeowners to walk away from their financial obligations because financial institutions routinely walk away from theirs.

Putting aside the obviously infantile excuse that it's okay to do something because everyone else is doing it, I have some real problems with the idea that a mortgage is a disposable legal and financial obligation that ceases to exist whenever a homeowner deems it to be in their personal interest to leave it behind.

Here's what Pete's strong post on mortgage modification didn't say: it may not make as much sense for a servicer to modify a mortgage as policymakers...and the rest of us...want to believe.

For the uninitiated among us, a mortgage servicer is the institution that collects your monthly mortgage payments and handles all of the day-to-day administrative needs.  A mortgage investor is the person or institution that actually owns the loan.  They may be the same, as when a lender makes loan and holds it in its portfolio rather than selling it to someone else.  But in an era of securitization and mortgage-backed securities, mortgages are increasingly owned by someone other than the institution or company (remember all those subprime mortgage companies located in Southern California?) that made the loan.  The investor may not have the capacity or the desire to service the loan themselves, so they contract with another institution -- the servicer -- to do it.

Here are several things to consider:

By his own admission, Ed Andrews is not a sympathetic character in his book, Busted.  Life Inside The Great Mortgage Meltdown. In fact, he says right up front in the introduction that he was not a victim (page xii, the fifth page of the Introduction) of anything that happened to him and, at least as far as I can tell, doesn't ask for forgiveness from anyone but his wife.

That's a good thing because as the chief economics correspondent for the New York Times and a reporter that many, many people read on a daily basis, he should have known how deep the financial hole he was digging for himself and his family.

In addition, as almost anyone in the economic blogsphere knows (Megan McArdle over the The Atlantic lead the charge), Andrews has been heavily criticized for not including the fact that his wife had declared bankruptcy twice before.  That he now admits that was a mistake doesn't make it any less important an omission.

Tense negotiations on allowing bankruptcy judges to modify home mortgages are underway in the Senate.  The outcome will determine whether hundreds of thousands of homeowners can keep their homes.

President Obama supports allowing home mortgages to be modified in bankruptcy, as do most, but not all, Democrats.  Most Republicans and mortgage bankers oppose it.  The arguments pit political necessity, reducing an estimated 8 million foreclosures by up to 800,000, against economic reality, mortgage rates will go up for everyone to pay for mortgage bankruptcy relief for those few.

On March 5, the House passed H.R.1106 by 234-191.  Seven Republicans supported the measure, and 24 Democrats opposed it.

In a recent essay in Time, Michael Grunwald asks, "Is Florida the Sunset State?"  I picked it up on my recent trip and read it on the airplane.  The question hits home for me, as I grew up in South Florida.  The amount of growth there over the three decades since my family moved to town is shocking.  It is now far too crowded for me to ever want to live there.  I'll take the cold over the crowds any day.

As I witnessed the growth, both prior to leaving for college in 1986 and even more in the dozens of trips back since, I often wondered what was fueling it and, more importantly, why local officials were so intent on promoting it.  Grunwald takes an unsympathetic view of growth for growth's sake, at least in hindsight:

Quite a bit of the housing stock in the urban areas of New England consists of triple-decker, multifamily buildings.  Mark Jewell of the Assoicated Press writes that the slump in the housing market is taking its toll there, as well:

LOWELL, Mass.—When Osman and Rose Bangura bought a two-family home three years ago at the peak of a housing boom, they saw a good investment in the $400,000 colonial, just a quarter-mile from the Merrimack River and the renovated 19th century textile mills now helping to fuel Lowell's rebirth.

For a couple years, they lived upstairs while rent from a downstairs tenant helped cut hundreds of dollars off the monthly payment they would have faced if they'd bought a single-family home.

But, like many owners of southern New England's nearly 320,000 two- and three-family homes, the Banguras ran into trouble. Their monthly payment on a pair of adjustable rate mortgages jumped from about $2,900 last summer to nearly $4,200 -- out of reach for a couple with $50,000 in annual income, supplemented by $1,150 in monthly rent from their tenant, a single mother of two children.

Similar stories are playing out across the densely packed cities and pricey housing markets of southern New England, where generations have found older two- and three-family properties more affordable routes to home ownership than single-families.

Congressman Raul Grijalva (D-AZ) introduced H.R. 6116, the Saving Family Homes Act of 2008 today: 

The Act would grant homeowners whose mortgages have been foreclosed the right to petition a judge to allow them to remain in the home as renters, and pay a fair market rent. The rent would be set by a court-appointed appraiser and adjusted annually for inflation.

The Saving Family Homes Act is one of the few proposed remedies for the current mortgage crisis which requires no expenditure of federal funds or additional bureaucracy, while giving immediate relief to millions of families facing foreclosure and preventing home vacancies that harm neighborhoods.

To prevent abuse by speculators, the Act limits eligibility to mortgages on single-family, principal residences, occupied for at least 2 years, which sold for less than the median home value in the metropolitan statistical area in which the home resides or the median value in the state if such information is not available.  

Dean Baker provides a clear and concise description of this "Own to Rent" plan in the most recent issue of Economists' Voice. The key advantages of this plan:

I confess: I get annoyed beyond measure when I read articles like this one from Alan Zibel and J.W. Elphinstone of the Associated Press, which ran in my local paper this week. It manufactures drama where none is warranted. Here's the hook: