As reported in the OC Register,August 13th, 2010

More and more people out there are not paying what they owe, whether it’s the  mortgage check for this month or a home equity loan from a couple of years ago when they were feeling flush enough to splurge on cars, boats or whatever they wanted.
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Are there no consequences?

One foreclosure expert says they seem to come only from ”the diabolical game of Russian roulette.”

ForeclosureRadar.com Founder and CEO Sean O’toole  writes in his latest blog post, “Foreclosure Roulette – A game of extend and pretend’:

“The problem faced by both lenders and the government is that they can neither afford to kick homeowners out, or bail them out. For lenders, either scenario forces losses to be recognized, while thanks to mark-to-model accounting rules, and little or no pressure to foreclose from the FDIC, they can instead leave non-paying homeowner in place and push those losses into the future.

“Politicians have no appetite for allowing banks to put families on the street en masse through foreclosure, nor forcing banks to deal with the problem through bankruptcy cram-downs or other means. At the same time they realize their constituents who do pay their mortgage (or rent) simply won’t stand for a taxpayer funded bailout of their upside down neighbor.

“So long as lenders continue to foreclose on at least a handful of homeowners each month, in what from all appearances is a completely random game of chance, they’ll keep those willing and able to pay their mortgage doing so. Those who decide not to pay their mortgage will find themselves playing today’s update on the Russian game, Foreclosure Roulette, wondering each month whether they’ll get another free month in their prison of debt, or finally be shot and forced to move.”

 Meanwhile, a story in the New York Times this week, “Debts Rise, and Go Unpaid, as Bust Erodes Home Equity” shows how difficult it’s been for banks to recoup their losses from home equity loan borrowers. Even when a lender forces a settlement in court, it can rarely extract more than 10 cents on the dollar, reporter David Streitfeld says. From the Times:

“The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

“Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

“The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.”

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