Strategic Default is No Joke

I understand that misdirection is a classic formula for a joke or gag and no one on television is as good at this as the writers at The Daily Show, but I wonder if this is taking it too far. Confusion in the marketplace is one of the factors that is making it so difficult for the U.S. economy to recover.

While I love a good joke as much as the next guy, this bit by John Stewart is not in the best interest of the financial recovery.

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Mortgage Bankers Association Strategic Default
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Strategic default is a term that relates to those borrowers who could repay their loans but decide not to do so. It has not been applied to borrowers who have been negatively impacted by the financial downturn, who have lost their jobs or had health challenges in their family. These things do happen and the foreclosure process allows them to get out from under a debt they can no longer ever hope to repay.

Strategic default is different.

So can we apply this term to a national non-profit organization like the Mortgage Bankers Association, an organization that in 2008 and 2009 lost nearly 70% of its membership and revenue? There is nothing strategic about having your revenue stream dry up. This is not the same thing and should not have been used as the basis of a joke that only served to confuse Americans, many of whom think The Daily Show is real news.

Like many organizations during the downturn, the MBA faced hardship. The people who lost their jobs or got sick faced hardship. Strategic default has nothing to do with hardship. Strategic defaulting is lying, cheating, and stealing.

This is just another example of the media misinforming the public, creating confusion and delaying the recovery. Even worse, when the media spreads misinformation like this, it makes people think that making a decision to walk away from an obligation is socially acceptable, something that we should feel fine about doing. I don't agree with that.

And for those of you who think this won't negatively impact our industry and our country, pay close attention to those state attorneys general who are demanding principal forgiveness. If that happens, you can forget about foreign investment providing future liquidity for the U.S. mortgage business. How are we ever going to get the world to invest in US-originated mortgage-backed securities when the world knows that at any moment someone from the state can come in and say, “We understand that there’s a billion dollar commitment tied up in an appropriate security instrument backed by loans that were originated in compliance with law, but we’re going to force you to forgive a hundred million of that, so now your portfolio is only worth $900 million.”

Would you invest in that or do you agree that it’s just ridiculous?