The Great Mortgage Mystery

The big question from the mortgage meltdown isn't why so many distressed homeowners are defaulting on their loans.

It's why any of them are still making payments.

In the worst-hit areas millions have no equity left, and little hope of seeing any anytime soon. The market value of their homes is far below the size of the mortgage.

If they just stop paying, what is going to happen to them? In many cases they may get to live in the home rent-free for months, even years, until the bank gets around to seizing it.

If Frank Abagnale—the con man played by Leonardo DiCaprio in the film "Catch Me If You Can"—were operating today, he'd probably be living rent-free in a super-luxury high-rise in Miami.

Consider the latest revelations. The big banks are so backed up with foreclosures that some of them resorted to hustling through repossessions without the proper paperwork. Some of them—including Bank of America, J.P. Morgan Chase and Ally Financial's GMAC Home Mortgage—have announced a temporary freeze in some states on further foreclosures while they sort through the mess.

In one case, a bank employee said she was approving 8,000 foreclosures a month. By my math, that's roughly one for every minute and a half. No, she wasn't reading all the documents thoroughly. (As one wit observed, the banks paid about as much attention to foreclosing on the loans as they did to making them five years ago.)

In many cases, thanks to the fallout from securitization, it's not even clear who owns the mortgage. The payments may be due to different financial institutions around the world, some of which have gone the way of all flesh.

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