RateWatch 14 Oct – Dear Harry Reid, et al.

Markets: Flat.  Dead, absolute, flat.  No movement.  We’re in the middle of a trading channel and we cannot move higher or lower.  That sticks us at about 4.25 – 4.5% on standard 30-year notes, depending on several factors.

Analysis: Unemployment claims data in today showed mixed results.  New claims were up, continuing claims were down.  The inflation data came in much higher than was expected, but nobody believes that data any more, so markets didn’t react to that.  There was a bond auction as well, and it stank, but nobody cared about the, either.  Nobody cares about anything until the Fed decides what it’s going to do about another round of “quantitative easing” (that’s marketspeak for “the Fed buying up government debt”).  It’s inflationary, which is bad for bonds, but it also reduces the risk of DEflation, which is also bad for bonds.  Right now, markets are focused on the Fed and on this foreclosure moratorium.  Herewith, an open letter to Senate Majority Leader Harry Reid, and his cohorts, on that subject:

Dear Mr. Reid:

I see that you have called for a moratorium on foreclosures across the nation.  While I clearly understand your desire to protect the homes of the Senators and Congressmen that are inevitably going to be chucked out on their ears this fall, I want to suggest that such a moratorium is a bad idea.

No, strike that.  I want to tell you that calling for such a moratorium shows that, as we have long suspected, you have half the intelligence of a hatful of lice.

A foreclosure is the remedy of last resort for a bank.  In most cases, this bank has sent hundreds of thousands of dollars out there on behalf of a homeowner, on the promise that the homeowner will pay the bank back.  When the homeowner does not, the lender has no other recourse other than to foreclose.

Now, it is true that in 23 states in our great nation, foreclosures are undertaken judicially; that is, the lender has to prove to the court that it has the legal right to foreclose, upon which the court lifts that automatic stay of foreclosure and allows the lender to seize the house.  It is also true that in many cases (but by no means even a large minority) the banks fudged the proof by having someone state that he had seen the documents proving the aforementioned right to foreclose, when no such thing had actually happened.  This is perjury.  The banks are being punished right now, even as we speak, by having mortgage notes invalidated in such cases, giving the homes in question to the individuals living there outright.

Perhaps this is justice.  The banks violated the law.  But the individuals that are now getting their homes given to them violated the contract under which the home loan was made.  Search all you want, and you will not find a single case in which the homeowner was sent into foreclosure despite having made all his payments.  The homeowner was derelict.  he violated a contract.  He will not, nonetheless, be punished for it.  In Nevada, perhaps, that is called justice.

Leaving that aside, in the other 37 states the lender hasn’t made even a technical violation of the law, but you’re calling for them to be unable to foreclose there anyway.  I know this is likely to get you votes from the deadbeat class, and maybe that’s the only reason you’re calling for it.  But I want to point out a couple of things that you probably missed, not having had to actually hold a job for three decades or so.

One is that there are a lot of people out there that need to get out of their houses so that housing stock can get back to producing returns.  Those people were going to be levered out through foreclosure, quite often.  Pass a moratorium, and those houses can sit there on the banks’ books as non-performing assets until their walls fall in.  This is a bad time to have stuff like that happen.  If there’s a moratorium on foreclosures, how many people are just going to stop paying those mortgages altogether?  That’s also going to be really good for the tottery financial industry.

But the second thing is worse.  If banks have only one recourse in a mortgage default, and you take that recourse away, what will banks do?  They will stop lending money.  Why would they?  What can they possibly gain from it?  The mortgage market is already in the ICU from all the other crap you guys have been throwing at it, and this would further reduce the already pitifully small number of people that can qualify for a mortgage in the first place.  Surely, SURELY, you can see this.  Your state’s unemployment rate is already well above the national average, and why is that?  Because of all the people there that used to be part of the homebuilding and homebuying industry that are now out going door-to-door selling vacuum cleaners.  What you’re suggesting will make that problem WORSE.

Since there’s nobody on your staff, apparently, that is able to understand this, you’ll just have to trust me.  Or trust the White House.  Nobody there has ever had a real job, either, but even THEY have this figured out.

We out here on the front lines of the market have only one request.  LEAVE US ALONE.  The sooner you do that, the faster things will get moving in the right direction again.

Or, you know, just wait a couple weeks, then you can make whatever decisions you want, and we won’t care.  We’ll see if Sharron Angle has a better grasp of third-grade economics.  Maybe you can get a new job selling vacuum cleaners.  You’re obviously a hell of a salesman.



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