Happy Home or Distressed Home? Or Both?

Pretty soon, all the rumors and speculation is going to turn into  something you can get your hands on. It's about time. Hardly anyone is getting a loan modification. Some people are getting loan mods offered that don't do much. Lots are getting the runaround.

As all this goes on with no resolution, more and more defaulting borrowers are balancing why big banks seem to get bailed out and regular people don't. Its not that the situation makes them angry--it does, but it makes us all angry--it's that the ethics of the whole arrangement are being reevaluated.

More and more people aren't seeing a lot wrong with stiffing their lenders. And lenders and regulators need to pay attention. Where once it was seen that paying your mortgage was a moral and ewthical obligation, that's becoming less so.

In a news item a couple of days ago, it was reported that Barney Franks is meeting with lenders to "do something" about second mortgages in default. Many defaulting borrowers don't just have a first, they have seconds (or HELOC's) as well. The lenders on the seconds are holding up short sales and other foreclosure avoidance.

So, the thing that has to break, IMO, is that principal balances are going to have to get written off. Seconds are a part of this discussion. It's the only way to incentivize people to pay their mortgages.