My mother, like most mothers, warned me never to discuss politics and religion at a dinner party.
She never mentioned jingle mail.
That’s the term for mailing your house keys to a mortgage lender because you’re walking away from both a home and a mortgage that you can still afford but whose market value has dropped below the amount owed on the loan.
These “walkaways” from an "underwater" mortgage can be very defensive while also giving very practical reasons for their “strategic defaults." If someone, for example, had bought a house for $300,000 in 2006 with a $250,000 loan but that home is now worth only $200,000, then why stick around for a market turnaround? Better to force a foreclosure, take a hit on your credit rating, and move on (alas, as a renter).
But then if anyone (like me) mentions moral reasons for not walking away from an obligation to pay, you quickly become a party skunk.
An estimated one quarter of homeowners have houses worth less than their loans, and about one in eight of mortgage defaults are done by people who can still afford their payments. What if this jingle-mail trend continues? Wouldn't the housing market really collapse, and even more neighborhoods would be destroyed with a surfeit of empty houses?
At least now I am in good company. On Wednesday, Fannie Mae, the mortgage giant recently taken over by taxpayers and run by the Obama administration, has decided to go after these mortgage scofflaws with the full arm of the law. Fannie will not only make sure that the walkaways are sued in court but that they aren’t eligible for home loans for seven years.
Fannie Mae along with its sibling Freddie Mac guarantees about $5 trillion in home loans, or about half of all US mortgages. So the impact of this decision will be huge, not only in reducing foreclosures but in halting the growing social tolerance for strategic defaults as an easy way out from a contract.
Fannie claims it has guidelines to determine if someone still has the means to pay a mortgage. If so, at least a court judge will be there to pass judgment on the evidence.
But now Fannie is on the frontline of judging those who break a private contract and who don’t accept the consequences taking on a risky investment.
Better Fannie than me. At my next dinner party, I would at least like to get to the dessert after I bring up the topic of jingle mail.