Barney Frank, never a man to be outdone or not taken notice of, sent to Chase, Bank of America, Wells Fargo, and Citibank a letter essentially demanding that they write down second mortgage loans -unilaterally.  In simple English, these second mortgages taken when things were good, are standing in the way of a lot of people in trouble either short selling (selling the house for less than the mortgage loan) or renegotiating.  Therefore, adding two plus two and getting five as usual, the problem in the mind of Congressman Frank, must be with the lenders.

Now before I go on in this piece, let me clearly say that I too am on the side of people in real trouble.  That is, after all, what I am in business to do and what SOS is all about.  Therefore, I have nothing but sympathy and understanding for all of us who have bought homes at the wrong time or borrowed money against them and now are under water.  I get it - as those of you who regularly read my blogs know.  However, understanding that problem, sympathizing with the borrowers and even being here to help them is not the same as saying that they don't have some responsibility to accept.  After all, for good reason or bad, they took the loan and signed a contract.

And there is the rub.

At the heart of the entire economic system of the United States and in fact the world - is the contract.  We sign them all the time and most of us honor them.  When we borrow to buy a car, start a new job, sign an employment agreement, take a new credit card (the list just goes on and on), we all sign contracts. So, if the government is allowed to unilaterally decide which contracts are just and which can be ignored for whatever the reason, we are all in trouble. This is because once the sanctity of the contract is made irrelevant, business will suffer and costs will go up as a result.  In this instance if second mortgages are forced to be written down across the board by government, lenders in the future will just add the extra potential default cost to future loans and make them harder to get in the first place.

So, if I truly feel empathy with the borrowers in trouble, what do I recommend?  Easy.  On a case by case basis negotiate your own deal.  There is no need for federal intervention - which in addition to everything I have just written will also be gamed by the unscrupulous, as sure as God made little green apples!  Sure, that means making an effort and facing your lender to make the deal, but they will negotiate and all of this is perfectly ethical and reasonable.  Why is the Congress itching to get involved if this is the case?  Because they just do stupid things like this.  It is their nature.  So, when is their contract up?