Remember when the You Walk Away company launched at the beginning of the year and everybody freaked out about the end of an era? Reporters from all over the place (yours truly included) gave voice to analysts and bankers and general worrywarts, who fretted that the years of Americans continuing to make their mortgage payments as a matter of moral principle were over.
Both pointed to a lack of hard numbers that would evidence a wave of “jingle mail” — the term coined to evoke the sound of keys in an envelope when homeowners send their keys back to the bank in a kind of voluntary foreclosure, a decision based on the economics of being upside-down. (The LA Land blog was buzzing about these stories today, too.)
From the NYT:
Freddie Mac, the big government-sponsored mortgage company, estimates that just 0.14 percent of the defaulted mortgages in its portfolio involved properties that were abandoned by borrowers. Fannie Mae, another mortgage company, puts the figure in the single digits. Both companies deal in relatively conservative loans, so the total rate may be somewhat higher. Industry officials say they have no way of knowing for sure.
And from the LAT:
At Fannie Mae, the government-chartered company that owns or guarantees billions of dollars in home mortgages, Senior Vice President Marianne Sullivan conceded that there was growing “folklore” about residential walkaways but said that the phenomenon was more likely connected to investors than people who live in their homes, or “owner-occupants.”
In reading these stories, keep in mind that the loans in question under both of those agencies are conforming loans, or loans for less than $417,000. The majority of loans in the country are those conforming loans. But jumbo loans — those for more than $417,000 — became a lot easier to get a few years ago. And people who bought their houses a few years ago are the people who would be more likely to be upside-down.
I’m not saying the jumbo borrowers wouldn’t be as unlikely to walk away as those counted in the LAT and NYT numbers. But without an analysis of the bigger loans, it’s tough to paint an accurate picture for what’s actually happening. And with the difficulty the banks have had telling us much that’s useful about how many loans are in default, or how short sales are going, or really anything to do with this whole mortgage mess, there might still be a trend even if it’s impossible to quantify.
This morning, I called Jon Maddux, one of the You Walk Away co-founders, to get his take on the coverage this weekend. (The company charges homeowners $995 for a set of legal information and services to help them deal with foreclosure.)
He agreed with the stories’ perspectives that the walking away phenomenon has so far been happening mostly among investors with second or third properties. That group makes up the majority of their 1,000 or so paying clients, he said.
But Maddux theorized the worst is yet to come in terms of homeowners, tapped-out and living upside-down in their homes, deciding to walk away. Of course, his business could boom then — it’s already grown from four employees to 30. Maddux obviously has some motivation to hold that belief. Still, here’s what he had to say:
The majority of the people that we’re talking to on the phone are homeowners. Maybe they can pay it but in the next year they know it’s going to go adjustable. Before, they were thinking it’s worth it to pay a little extra for housing costs, because it’s an investment, I know it’s going to pay off. But now they’re paying $3,000 a month for a house that they could rent for $1,800, (they’re upside-down), and they don’t mind going back to renting and letting someone else take care of the roof.
Later in our conversation, he added:
I don’t think we’ve really seen it yet. The breaking point hasn’t really hit yet. People are still using their credit cards, borrowing a heck of a lot of money on their credit cards. … When [the market] drops another five or 10 percent — which it’s going to — they know they’re upside down and they can’t refinance. … I think we’re seeing kind of the tip of the iceberg.
I’m not suggesting we rehash all of that. But I’d love to hear your thoughts on these stories, your personal accounts of the decision to stay or walk away, or anything else. Send me an e-mail.