The Great Debate

Join us for a live chat today at 1 p.m. ET with James, who will be taking questions about his piece.

Call me a default-ista.

For a huge number of borrowers, be they U.S. homeowners or the sovereign nation of Greece, a default or radical rescheduling of debt might just be the best, most practicable option.

More to the point, default in many of these situations may be not just in the best interests of the debtor but of the economy as a whole.

First, homeowners. Something approaching 50 percent of U.S. mortgage-holders are underwater, meaning the value of the property is less than the value of the mortgage. If a second leg down in housing is under way, that figure will get much higher and the distance to the surface much longer.

It is an axiom of mortgage lending that it is usually far better for the lender to modify, or to cut the principal or repayments, than to suffer the expense of a default. Yet, what few modifications are being done are usually not nearly generous enough to give the borrower an honest economic interest in sticking with the loan.

(James Saft is a Reuters columnist. The opinions expressed are his own)

All the King’s horses and all the King’s men have been busy propping up the housing market but sometime this year, perhaps soon, it will face a Humpty Dumpty moment.

While it gets a lot less attention than the banking bailout, the official forces targeted at supporting house prices are truly vast; a generous tax break for buyers and a mortgage market that has essentially been nationalized.

That’s bought a recovery of sorts — Standard & Poor’s/Case-Shiller home-price index released on Tuesday showed that in 20 major cities home prices rose 0.2 percent on a seasonally adjusted basis between October and November, despite a national unemployment rate of 10 percent and a slow-motion cascade of foreclosures.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Britain needs to reflate its mortgage markets to save its economy and its banks. Problem is, few want to borrow and there is precious little money to lend.

British property prices are down about 15 percent in a year and mortgage approvals are down 52 percent. Given the freeze in the securitization market and the scarcity of savings in Britain, new net mortgage lending may even fall below zero in 2009, according to James Crosby, former head of UK mortgage bank HBOS, who authored a government report on the mortgage market.