Sunday, December 30, 2007

The Atrios Shift Register

Much worrying in realtor land as a borrower finds a way to walk away from his current loan. The ARM mortgage on his current house is $800,000. The bank realizes that he cannot make the payments and will allow him to sell the house for $500,000 and walk away. He is not walking too far however as he has just bought the house next door for $500,000.

Atrios suggests that borrowers could use this scheme to dump their negative equity problem onto the banks. Everyone with negative equity moves one house to the left in a giant housing market shift register.

If banks were going to benefit in this way the establisment media would mutter darkly about moral hazard and nothing would be done to stop it. Since its the borrowers that stand to benefit the concerns are likely to be much louder and the loophole will be swiftly closed if any appreciable number of people attempt to use it.

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