The Uptight Citizens' Grenade

Over at Zero Hedge, Gonzalo Lira recounts the story of Brian and Ilsa, a retired couple in their 60's who played by the rules the whole time, qualified for HAMP assistance to save their underwater mortgage bought at the top of the bubble in 2005...and then got screwed by everyone  The lower mortgage rate that HAMP was supposed to get them vanished after three months and then they owed the rest...plus penalties.  It's folks like these, Lira argues, who will revolt quietly...and that will mean the end of the housing market shell game. 

They haven’t defaulted—not yet. They’re paying the lower mortgage rate. That they’re making payments is because of Brian: He is insisting that they pay something—Ilsa is of the opinion that they should forget about paying the mortgage at all.
 
“We follow the rules, and look where that’s gotten us?” she says, furious and depressed. “Nowhere. They run us around, like lab rats in a cage. This HAMP business was supposed to help us. I bet the bank went along with the program for three months, so that they could tell the government that they had complied—and when the government got off their backs, they turned around and raised the mortgage back up again!”
 
“And charged us a penalty,” Brian chimes in. The non-payment penalty was only $84—but it might as well been $84 million, for all the outrage they feel. “A penalty for non-payment!”
 
Nevertheless, Brian is insisting that they continue paying the mortgage—albeit the lower monthly payment—because he’s still under the atavistic sway of his law-abiding-ness.
 
But Ilsa is quietly, constantly insisting that they stop paying the mortgage altogether: “Everybody else is doing it—so why shouldn’t we?”
 
A terrible sentence, when a law-abiding citizen speaks it: Everybody else is doing it—so why don’t we? 

In a sense, that's exactly how this situation started.  The banks saw the mortgage refinance bonanza and realized they needed more fuel for the fire, so they began fudging on the loans.  And of course, everybody else was doing it, so why don't we?  And now, ironically, that's exactly the attitude millions of Americans are going to take when they walk away from their homes, or sue the banksters for playing fast and loose with the foreclosure paperwork, or both.

And when the mortgages stop getting paid, either by people walking away or by the foreclosure freeze locking up the housing market like an engine with no lubrication, the whole infernal contraption collapses like a cartoon Rube Goldberg machine or a Mythbusters experiment gone horribly right.

And when it does, it takes us all with it.  Because when this Uptight Citizens' Grenade goes off, it will blow out the supports holding up the stage, and the show will finally stop.

And something much more dangerous will begin.