Update on the Mortgage Morass

You'll recall Krugman's hysterical response to minor, strictly procedural irregularities in mortgage foreclosure documents:

http://paulkrugmaniswrong.blogspot.com/2010/10/mortgage-morass.html

His paper, the NYTimes, confirmed exactly what I suspected, which is that the irregularities are strictly technical, and that borrowers aren't paying what they owe:

http://www.nytimes.com/2010/10/28/business/28victims.html?ex=1303876800&en=059663b879f3ebf7&ei=5087&WT.mc_id=BU-D-I-NYT-MOD-MOD-M173-ROS-1010-HDR&WT.mc_ev=click

As the NYTimes notes, "Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills ..." and that "[c]onsumer lawyers and housing experts acknowledge that it is relatively rare that a bank initiates foreclosure on a homeowner who is current on the mortgage or has no mortgage at all"

The following vignette is instructive:

Charlotte and Thomas Sexton, of Carlisle, Ky., fell behind on their mortgage payments because the payments on their adjustable-rate mortgage spiked upwards and Ms. Sexton lost her job.

They tried unsuccessfully to sell the home, to refinance it and to modify their mortgage payment. When the Bank of New York Mellon filed a foreclosure notice last summer, they went to a local lawyer, Brian Canupp, who, with the help of a forensic accountant, found a problem in the foreclosure filing.

Last month, a judge tossed out a foreclosure judgment after Mr. Canupp argued that the mortgage trust that claimed to own the Sextons’ promissory note —Mortgage Pass-Through Certificates Series 2002-HE2 — did not exist.

Instead, another trust, called IXIS Real Estate Capital Trust, Series 2005-HE2, claimed to own the Sextons’ note, court records show.

Ms. Sexton said that regardless of who owns her promissory note, she just wants to stay in her home and hopes that the bank will eventually agree to a loan modification.

“We found a mistake,” she said, “that gave us a light at the end of the tunnel.”

In other words, a highly technical dispute exists between as to who owns the notes, an issue which in no way impacts this deadbeat borrower. The identity of the owner of the note is no way impacts the existence of the indebtedness or default -- the borrower owes the money, its just a question of to what entity. The sensible solution is to allow the foreclosure to proceed, with the property held in escrow until the ownership is determined. This simple procedure -- which is done all the time in legal disputes -- would solve all the alleged problems. Of course, nobody will advocate this, because the result would be that contracts are enforced, which is the exact opposite of what they want. So, the next time you read about these "mistakes", remember that the goal isn't to remedy the mistakes, but rather exploit them as pretenses for bailing irresponsible people out.