Broker Bryant a real estate agent in Poinciana Florida was recently talking about the upswing in consumer walkaways. Now the term jingle mail has been around for a couple of years now and refers to when home owners just mails their keys back to the lender and walks away from their house. As consumers are being squeezed with unemployment or pay cuts, they are walking away from other forms of debt as well.
The New York Times wrote an article about this increasing phenomenon in July 2009, and the Wall Street Journal wrote an article a couple of weeks ago about hotels walking away from debt. I thought this was a really great quote in the article.
“You reach a point where you embrace the darkness of default,” said Adam Levin, chairman of the financial products Web site Credit.com.
I think with short sales and foreclosures so mainstream these days, the darkness of default was going to inevitably head over into other credit sectors. The stigma associated with foreclosure is eroding away, quickly. Credit card losses are expected to reach $100 billion during this recession. That is just the credit card losses. The article quotes Bank of America’s credit card default rate at 13.8% and rising.
The Salem Oregon real estate market isn’t as bad as some parts of the country. Option ARMS were not common means to purchase homes in our area. Personally, when I hear the word jingle, I tend to think of the song jingle bells, Christmas, marsh mellows, etc. The word has always had a positive connotation for me personally. Somehow I see a change in the lyrics up ahead.
I have come to feel that residential home buyers should feel no remorse whatsoever about defaulting on a bank loan, given that law schools teach about “rational breach” in contracts classes and also that corporations have a duty to their shareholders to breach contracts when the cost of breach and any penalties is less than the cost of staying in the agreement.
Recent buyer there is a term called strategic default for people that can pay their mortgage, but have just decided to stop. They are underwater and it makes more financial sense to just walk away from the house then to keep it.
The current issue is that people are defaulting on everything now. It’s everyman for himself, and those that default are taking others down with them.