Mortgage Mischief

By Megan McArdle

Felix Salmon discusses the sad case of a man who clearly cannot pay his mortgage and demands:

So this is what I'd like to ask Megan McArdle, and others who like to extoll the moral virtues of paying one's debts: just how much of your life's savings should you give these snakes before they take your house?

I don't really understand the question.  I am in favor of people are financially able to keep the house without getting foreclosed on, keeping the house rather than getting foreclosed upon.  The guy in question clearly cannot, given that he lost his job and has no tenant for the property in question.  Obviously he should have walked away immediately.

Indeed, I don't understand why he didn't, since the article makes no mention of any suggestion or promise that accepting a modification that didn't reduce his payment, would later qualify him for one that did.  And since it's pretty clear that Mr. Vellucci cannot afford much of any payment at all, it's not clear why he--or Felix--thinks he should have gotten one.  Modifications are supposed to be a deal that makes both sides better off by avoiding the huge costs of foreclosure, not a vehicle for transferring wealth from bondholders or bank shareholders to people we like better.  The latter is what the progressive income tax is for.

Do I feel sorry for Mr. Vellucci?  Very sorry.  Illness is usually framed by complaints about large medical bills, but for most people income loss is at least as great a problem, and often a much bigger one.  And Mr. Vellucci seems to have been a financial naif who was given bad-to-fraudulent advice at every turn. What happened to him is tragic, and I wouldn't be sorry to see the folks who defrauded him spend some time in the pokey. 

But the implied combination of tiny savings, minimal income, and inability to find a paying tenant in a real-estate market with a sub-2% vacancy rate, does not suggest that the solution to his problems is a mortgage modification.  I'm not sure what the servicer could have done, other than foreclosed outright.  Or what Felix thinks this has to do with people who decide to default on their mortgages so that they'll have more money to spend on cruises and new furniture.

This article available online at:

http://www.theatlantic.com/business/archive/2009/12/mortgage-mischief/32760/