In yet another sign that the Great Recession is receding, earnest discussion has begun in the punditocracy on long-term cures for our nation’s home mortgage system, particularly Fannie Mae and Freddie Mac. (Remember them?)
I’m not sure if anything at all will come of this. It’s not clear that Congress has enough gas left in the tank to finish with healthcare, never mind rewiring the mortgage business. If I had to bet money I would say that this window of opportunity, in which there is consensus that something needs fixing, will close without much of anything changing.
But it’s inspired some rare discussion of that great American institution, the thirty year fixed rate mortgage. And it really is a uniquely American institution. Except for Denmark, which has a very peculiar system dating to the Eighteenth Century, only in America do consumers think that borrowing on thirty year fixed rates is normal.
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Last week The Consumerist had a post telling readers to Go Ahead, Strategically Default On Your Underwater Mortgage. This was based, more or less, on a paper from a law professor at the University of Arizona which addressed the legitimate conundrum of why strategic defaults are not more common.
A strategic default on a mortgage is when a borrower can make the payments 
but chooses not to. In other words, the borrower hands the keys over to the lender and walks away. It is important to remember that, despite much play in the media and academia, this is still a rather exotic maneuver. In order for a borrower to even begin considering such a move two things need to be true.
First, obviously, the house has to be worth a lot less than the outstanding mortgage balance. Or, in current slang, it needs to be substantially underwater. Swapping ownership of the house for extinguishing the debt is, essentially, selling the house for what is owed, and if what is owed is not meaningfully higher than what the house is worth, this would be a bad deal.
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Last week I forgot to say that the day before Travel Nightmare Wednesday is September House Price Index Tuesday. Today is the day that S&P releases the S&P Case Shiller Home Price Index numbers for September.
They’re okay. The 20 city composite was up 0.33% for the month. but only 9 of the 20 individual cities were up. (Although on a seasonally adjusted basis the composite was up 0.27% with 11 individual cities posting positive numbers.) So basically it was flat. Ho-hum. Boring.
And ain’t that wonderful?
Of course, the fear would be that this is the tide turning again and we’re in for more declines. Anything is possible, but I don’t think so. We will probably get some down months in the near future, but the big bust is over.
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Another last Tuesday, another positive report on the S&P Case-Shiller Home Price Index. The 20-city composite was up 1.2% in August, putting it 4.85% above its April low. That’s a long long way from the heights of 2006 (it’s now 29% 
below the July 2006 peak) but it’s increasingly looking like this is not just a blip in the data.
17 of the 20 cities recorded gains. Charlotte, Cleveland, and Las Vegas were the only unfortunates. Charlotte and Cleveland don’t have much to worry about, they were both up more in July than they were down in August, and overall they saw relatively modest declines in the bust.
Vegas, on the other hand, can’t seem to snap its losing streak. This makes three solid years of down months. The only consolation seems to be that Sin City was down only 0.3% in August, breaking up two years of monthly losses greater than 1%. It’s now down 55% from the peak. Yikes.
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The Digerati Life had a post last week linking to a tool at CNN Money. It asks you a few questions and then gives you a letter grade for your financial health. It’s 
just as subtle and sophisticated in its analysis as you would expect from a web applet on CNN.com.
But it does nicely encapsulate the conventional wisdom on personal finance. So nicely, in fact, that I will use it as the structure for a new occasional series here at BMA, The Conventional Wisdom.
Today the topic is the first question in CNN Money’s quiz: How much is your housing payment? If you enter in more than 28% of your gross income you flunk this one.
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I’m not sure if anything at all will come of this. It’s not clear that Congress has enough gas left in the tank to finish with healthcare, never mind rewiring the mortgage business. If I had to bet money I would say that this window of opportunity, in which there is consensus that something needs fixing, will close without much of anything changing.
Government, Housing | Frank Curmudgeon | 
December 16, 2009 6:00 pm | 
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