'Walking away': A real trend or suburban myth?

Both the New York Times and the Los Angeles Times are out today with lengthy stories questioning whether the much-discussed "walking away" trend -- you might also call it voluntary foreclosure -- is a real event or a suburban myth. Both stories conclude that there is no good evidence to support the notion that more and more homeowners are making an economic decision to give up on their homes without a fight.

The L.A. Times' Michael Hiltzik: "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.' ... 'The vast majority of borrowers we find have been acting in good faith,' she said. 'If they get behind, they are interested in working with their lender.' "

The New York Times' Vikas Bajaj: "The blogosphere is full of tales of homeowners who supposedly are choosing to mail the house keys to their lenders rather than keep their depreciating homes. And yet 'jingle mail,' the term for those tinkling packages of keys, appears to be far rarer than many seem to think. 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."

Analysis: Agreed, there are no good data indicating that walking away is a real trend. But: Banks and lenders have established that they are clueless when it comes to understanding the people they lent money to, the true economic condition of those borrowers and the real reasons some of them stop paying their mortgages. In many cases, borrowers go into foreclosure without ever having a conversation with their lender. In those cases, the borrower's financial condition, and calculations, are a mystery. In short, it's not clear that lenders are a particularly reliable source on the issue of why some homeowners go into foreclosure.

Your thoughts? Is "jingle mail" real, or is it a suburban myth? E-mail story tips to peter.viles@latimes.com.

Comments

[Truth2Pwr]

I'm really not surprised to hear this. Most of these "homeowners" were able to "buy" waaaaaaaaay more house than they will ever be able to afford again, especially if they have a defaulted loan on their credit rating. Their quality of life is only gonna go down from here, so of course they don't want the good times to end.

[shockg]

Jingle mail got blown out of proportion by the media and the many fantasy bubble blogs that any Joe can operate.

[sandiegan]

"Jingle Mail" -- GOOD COPY!

Owners trying to work out loans -- BOR-RING!

The former plays into people's schadenfreude and love of feeling morally superior to others. (All that talk about "moral hazard" and 90% of people don't even know what it means.)

Banks made loans to borrowers they had no real relationship with. Now, the cost in worker-hours to establish relationships to work out the financial problems to the benefit of all is just too high.

Banks can't afford to renegotiate loans not because of prices or rates but because the cost of those negotiations is too high to do it with the alacrity needed now.

That's why a blanket, government backed renegotiation of loans will probably happen---because it will be beneficial to the banks.

It will have NOTHING to do with owners threatening "jingle-mail" and everything to do with the cost of doing business in the USA.

[E]

Hasn't even started.

Many of the 2004-2006 ARM purchases haven't even reset yet.

Then...last one to "jingle" is a rotten egg.

[FINLwhiz]

The truth is that here in SoCal, they bought half of what they could have afforded all things being considered. Regardless of how much due diligence or affordability you put into buying a home here in the recent past, today you're underwater and have half the house you could afford under the same rate and terms that you presently have.

I don't see how those are "good times" someone doesn't want to see come to end.

Although, I do agree that a lot of the hype over the issue was over-exposed. I tend to believe that most people with an ounce of character will try to honor their obligations; or at least work with their lender if they find themselves underwater. Nonetheless, trying to work with a lender can be a fruitless experience which generally starts in good faith and from what I've seen folks just give up in the end having exhausted all reasonable efforts that have generally gotten them nowhere.

[Tim Hebb]

I call it "elective" foreclosure (like surgery), and we all know at least one famous recent example: Jose Canseco's. My gut feeling is that if it's happening in public, it's happening even more in relative privacy. Just because there aren't reams of statistics documenting it, doesn't mean it doesn't exist. And Canseco's unabashed confession gives the practice some legitimacy for some people. Personally, I think it's a completely justified maneuver: the lender stakes a claim to the property based on a perceived value, and CA law limits the buyer's liability to the value of the house. It's a gamble for both parties, which in normal times both "win." But sometimes one loses; that's business. Don't try to tell me that lenders' ethics are any higher or better.

[tew]

Ironic, isn't it?

Aren't banks and government officials telling us they have a way to determine who should get a principle write down and a government subsidized rate? How can they then tell us there's no real way to figure out if somebody can really afford the payments?

It seems that when the discussion is framed as an accusation that borrowers are willfully defaulting, we can't tell the willful from the "needy". When the frame is bailing out the "unfortunate", suddenly we can tell them apart.

A Wharton real estate professor asks "How would you know what someones true ability to pay would be?". If the industry can't figure this out, we're in deep trouble. Aren't all prudent lending decisions supposed to be made based on default risk?

[sidewinder1]

Here's one datapoint to confirm the story. My friend is a traveling nurse with a home in Bakersfield. She can easily afford her monthly payments, but her house is underwater since she bought at the peak. Her mortgage is fixed rate but she bought her house with no money down. She doesn't want the house and she doesn't want to absorb the loss of a sale. Guess what? She's stopping her payments and will let the bank foreclose (however long that takes). She doesn't care about her credit rating since there will be no hurry to buy a house in California for many years to come. Congress will make sure she doesn't pay taxes on the remaining amount she finally owes the lender, and the State of California will also make sure the lender has no recourse to come after her for the mortgage balance owed. If the lender, Congress, and the State of California were stupid enough to absorb all of the risk associated with this dysfunctional real estate market they deserve what they are getting. Welcome to 21st century socialism folks.

[left of lefty]

fannie and freddie don't buy toxic mortgages. so their portfolio tend not to have stressed borrowers.

that say, i think most people will try to stay in their homes if they possibly can. finances aside, there is a certain social stigma associated with losing one's home. people don't want to 'downgrade' from owning to renting, especially here in image-conscious southern california.

happy early mother's day to all the moms out there.

[Laker]

shockG is still in shock, He does not believe there was a housing bubble at all. All the current write downs, economy tanking, houses that are going for 60% less than their 2006 price is fiction to him. everything is fantasy bubble.
wake up fool and smell the coffee. Better go and look for a rental since the bank will soon take your house...maybe then you'll appreciate jingle mail. Fool!

[Susan Hilton]

The old community banks used to know their customers - maybe that was a better way.

[SoCalRealEstateNews.com]

This is the steepest price decline in the three decades I've worked as a real estate broker. It's also the only one preceded by widespread 100% financing.

Yet my experience is most homeowners do all they can and more than they logically should to hold onto their homes.

Take the couple who called wanting to sell because they were three months behind. They owed about $100,000 more than current market value, and their mortgage payment of $3,000 was a little more than their take-home pay. (This was a 100% loan, no verifs, & my guess is their lender completed the application based on income needed to qualify.)

We found a buyer and were negotiating a short sale with the lender when the file was pulled because the owner had "worked out" a payback plan, adding $1,000 a month to the $3,000 payment they couldn't afford.

I pointed out the obvious problems to the seller and the lender, but to no avail. I shook my head & gave the listing back. True story, & sadly typical.

For more "real estate news from the front lines," check out our blog,

http://SoCalRealEstateNews.com

[Cal]

This is the first firm number I've seen reported for LA County for April, I'm surprised it is so weak:

"Still, home sales are sharply down from a year ago when 5,096 homes were sold in April. In raw numbers there were 3,647 home sales last month, but that reflects a five-week HomeData reporting period. Adjusted to reflect the four-week period of a year ago, that number falls to 2,918 units – a 43 percent drop year-over-year."

http://www.labusinessjournal.com/print.asp?aid=
794940202.2575342.1625247.8618389.6411489.964&
aID2=125010

Everyone is reporting increased pendings for the past few months but the pull through to closed sales just isn't happening yet. From the CNN article this the one local broker was saying that a third of his pendings aren't closing.

[Truth2Pwr]

Well, FINLwhiz, if you look at it like an investor then if course you're right, but for the average "homeowner", if they send in the keys they destroy their credit and lose their ability to re-enter the market until it is repaired and/or they can come up with a 10-20% downpayment, which for many of them will be never. So whether it makes sense from a purely financial standpoint or not (it does) there are emotional/practical factors at play as well that need to be accounted for.

[John T Watts]

What is kind of unknown is how people will behave when is becomes a consensus that the market has reached bottom and is heading in the other direction. Will the market remain flat for a long time as has been predicted or will people more rapidly start buying again causing prices to rise again quickly? If the banks can anticipate the market going back up, there is less reason to renegotiate.

[Steve]

Simply more media hype. To me it is this simple, you have two options to invest: 1) Wall Street where you have no control and it is a given you will get screwed by an overpaid CEO who is incentivised to run a company in to the ground to get a multi million dollar exit package, just look at Carly at HP and Nardelli at HD, watch Chrysler will go BK and Nardelli will walk away with another $200M again, the stock holder gets screwed, only in America. 2)You buy real estate which you have more control over, you can touch it, live in it, unlike paper. If you are in it for the long term you will make money. I have lost over $.8M in the stock market and have made millions in RE. There is a distinct difference if you simply buy and hold> read the book. You ask any moron what has been ther best investment they ever made and 99% will say a home. If you can not afford SoCal move somewhere you can afford, paying down a house is more important then a so called career in entertainment. For those morons who brag about renting in LA, due the calculations, the last five years of rent would of paid off a median priced home where I now live without the gang bangers waiting for you on the 405. I just do not get it.

[John]

http://www.latimes.com/business/
la-fi-makeover11-2008may11,0,6614678,full.story

As long as people like the woman in the above article are still not directly facing reality, and as long as mortgages like hers are still in the system, jingle mail is going to be a distinct possibility.

The number of people mailing back their keys isn't the issue, it's that there is an ENORMOUS number of people in the position to a) be foreclosed, b) do a short sale, c) do jingle mail.

The great L.A. real estate sale will be going on for a while yet.

[tew]

Steve - do tell us where you live... "For those morons who brag about renting in LA, due [sic] the calculations, the last five years of rent would of paid off a median priced home where I now live"

$1,500/mo gets you a good place in many parts of LA. That's $18,000/yr. That's $90,000 during the past five years. Where can I get a decent place paid for over five years for $90,000? Assuming a 6% loan and 2% property taxes the home would have to cost $74,000 to spend $90,000 over five years.

[Dean Plassaras]

These are early signs of a much deeper structural problem to hit the economy and our financial systems in the future.

[shockg]

shockG is still in shock, He does not believe there was a housing bubble at all. All the current write downs, economy tanking, houses that are going for 60% less than their 2006 price is fiction to him. everything is fantasy bubble.
wake up fool and smell the coffee. Better go and look for a rental since the bank will soon take your house...maybe then you'll appreciate jingle mail. Fool!

Posted by: Laker | May 10, 2008 at 08:19 PM

Speaking of any average Joe who can create a bubble blog of cherry picked listings.......Laker crawls out from under his rock. Haha. Yeah 60% off in your dreams. You are really pathetic if you need to lie to push your agenda. You are REALLY REALLY desperate for prices to come down. s

[shockg]

And does anyone notice that Laker Cherry picks listings that sold fraudulently at the peak for inflated prices and then says "see see see, this home is selling for 40% less than the peak" I got news for you laker, those cherry picked examples were sold to straw buyers and involved mortgage and appraisal fraud. You sir are slimey.

[Milan Cole]

Nobody likes to move... and people don't like having their credit trashed either.

[DF]

One datapoint: I have a relative in a very nice condo development in Newport Beach where 1000-sqft residences were selling for as much as $700k at the market's peak. One resident who was leveraged at $650k recently walked away when a lower-end unit sold for $420k. The bank that is currently marketing her place has it on the market for $710.

Still, this doesn't disprove the thesis of each of these articles that the "jingle mail" trend is overblown as a percentage of overall mortgages. However, what seems to make it a trend is the increase in the practice vis-a-vis previous years, and neither of these articles seem to have data on that.

[Tokyo Temp - ex LA Renter]

yes Steve please do tell us where you live?

I rented in Culver City a nice apartment, but nothing special. Without a voodoo loan that would of reset, in the 6 years I lived there, there was absolutely nothing I could of purchased and have the payment (including PITI) that would of been the same as my rent.

The funny thing was, was that I was making well into six figures, yet I knew people making around 80k buying up 400-600k condos/houses with vodoo loans (yes on the Westside) and thinking, what a bunch of idiots!

[Benji]

I can help you get out of forclosure and save you 7 years of bad credt. THis is not a scam, its called a short sale and it wont cost you one single penny. Avoid forclosure now!
Benji 8586886861

[exOC]

I owned a home in an OC neighborhood built in 2006, sold last November due to a job transfer to LA.

My neighbor "friends" were royally angered when we sold for the same $ as we purchased.

We put 10% down, scraped to make payments on a $750k place on a $150k salary, and wondered how these folks who made less than us could be driving BMW, M-B, and gas guzzling SUVs.

It was clear when I began to have conversations: every single one (there were a couple dozen homes in the tract) had IO and ARM financing, zero down. I was shouted down by one such friend in his garage when I suggested that the IO loan is a dangerous thing and it's akin to roulette with your family's home. "Don't you know this is OC? We have coastal breezes, jobs, and the best schools. Watch these places go for a mil in the next year."

While it was a tough decision at the time, ripping my family out of our dream home for a job in SFV, the job is fantastic and we can finally breathe financially since we sold 7 months ago.

Many of the aforementioned loans reset in the next 24 months. I suspect when the dust settles, either the banks will dramatically reduce principal (the shouter was paying $1k less than going rent for his IO and can barely swing that), extend terms, or the neighborhood we miss so much will be littered with distressed sales.

Anecdotally, 3 of the 12 people in my department at work are strongly considering ruthless default. This is a matter of time, and it is real. We are just early in the process.

[Anonymous]

shockg --

The game is up. Everyone now knows it was a bubble. It was an enormous bubble, absolutely gigantic, juiced by lending practices heretofore unknown to humankind. Laker may be cherry-picking facts, but you sir are the pathetic ostrich. Deal with reality and move on.

It's interesting that you have no inclination to dispute the ridiculously anecdotal "facts" in Steve's post above. Too bad Steve hasn't yet actually looked at the real statistics to determine that stocks have FAR outperformed real estate in long run. Operating businesses have always had the advantage over passive investments, and the data show that this advantage has been massive over the long term. But, hey, good luck to you both. Keep your money in passive investments and let the investment bankers in NYC continue to lap you.

[househunting]

No one is walking away, eh? According to who???

"Mortgage servicers say their biggest problem is that they can't get in touch with delinquent borrowers. In about half of foreclosures, the borrower never communicates with the lender, despite the mortgage company's efforts."

http://www.bankrate.com/brm/news/mortgages/
20080214_project_lifeline_a2.asp

In fact, the lack of effort on the part of homeowners to try to stay in their upside-down properties is so rampant that they had to make a whole government program called "Project Lifeline" to TRY to get people to call their lender before ... dare I say it --- WALKING AWAY from their homes.

If the lenders are sending notice after notice BEGGING for a call from the borrower but can't even talk to so many of their borrowers before foreclosure, how can they say that "walking away" is a "myth"???

Hmm, sounds like someone needs to sell their now junk-rated mortgage backed securities to investors pretty badly. Nice try.

Don't buy the BS. Remember to use the good sense God gave you and that everyone has their own agenda. Think and research the facts for yourself.

Common sense would tell you that 1) people aren't going to be all that motivated to keep making payments, even at reduced interest rates, on a home that is depreciating rapidly. Why pay a $1M loan for a property only worth $750K if you don't have to??? (You don't even have to pay income tax on the forgiven amount anymore -- another brilliant move by the government); 2) shortsales are not an attractive option because the homeowner nets nothing, where is thehave no incentive to go through all the work of selling their home? ( If you've ever sold a home, you KNOW what I mean); 3) foreclosures are taking a long time and you could live in the home for up to a year or more without making any payments before a foreclosure is finalized. At $3500/month for instance, you stand to gain $42K. Compare that to a shortsale or modification where in one scenario you PAY MORE than your property is worth, losing money, or in the case of a shortsale you end up doing alot of work for nothing, have to show the lender all sorts of financial data to prove "hardship" and even then they will try to get you to kick in some money. Hmmm... a gain of $42K vs. a loss of $250K (if you keep the home)... I wonder which peoplke will choose??

I'm not advocating that people walk away, but I am realistic. People are motivated by self interest almost EVERY TIME. The number of foreclosures is evidence of this fact.

[John T Watts]

tew and Tokyo Temp. Check out the cost of homes on Realtor.com for Paris Texas. You really can get a lot for your money there. But it would be best to arrive there with an income such as a retirement check. You might not be able to find work.

[Ace]

househunting 'people aren't going to be all that motivated to keep making payments, even at reduced interest rates, on a home that is depreciating rapidly.'

Way off base. You are thinking of speculators. Your typical family will do everything they can do fight off a foreclosure. They don't care that they owe 20 percent more than it is worth... they care that their kids live their and their friends and schools are nearby.

[carter]

The banks are screwed. People like me are what they are afraid of. I can afford to make payments (although stretching thin) on my 800k loan. But my house is 200k underwater and I think it will be 400k by next year. I would be stupid to keep the house and keep on making payments on it since it will never reach that price level when i bought it. And screw all those moralist that think it's bad to walk away and how they weathered the storm in the previous housing downturn. Back then the level of negative equity was in the 10's of thousands, nowdays we are talking about 100's of thousands.

[Laker]

shockg,
If what you're saying is true and all the "cherry picked" properties i listed on my blog are a fraud case and/or mortgage fraud with straw buyers...then it is very bad news.
You know why?
Simply because i could choose ANY (probably 99%) sale in 2005, 2006 in SFV and it will match my cherry picking. When I "cherry pick" 99% of properties available, it is no longer cherry pick, but reality.
I'm sure it would be a lot worse in IE or high desert, similar in many parts of OC, and little less in west side or LA. But since I'm looking into SFV and specific parts of it, i just find properties in abundance that fit to my "cherry picking" criteria. I just can list them all because: I don't have the time for it, not space for it, and cluttering the blog will make it impossible to read.
The 60% i mentioned was a typo. What i meant is that you can find today houses that are listed/sold for 60% of their last sales price (2006 price). And i can document that! While all your fact are basically STATED FACTS ala stated income...

Your agenda, shockg, is like an OPTION ARM that increase the principal, it keeps accumulating garbage and false facts up until it reaches some cap as in 115% for OPTION ARM, then it explodes....

[Rich]

I've been suspicious of the "jingle mail" myth since the WSJ published their article with NO interviews with real people who did it--just a handful of bankers speculating that people might be be doing it. If it's really happening out there, you'll find people to talk about it, and if bankers are talking about it, you're hearing the voice those most disconnected from market realities...

[househunting]

Posted by: Ace | May 12, 2008 at 10:12 AM

RE: househunting 'people aren't going to be all that motivated to keep making payments, even at reduced interest rates, on a home that is depreciating rapidly.'

Ace said: "Way off base. You are thinking of speculators. Your typical family will do everything they can do fight off a foreclosure. They don't care that they owe 20 percent more than it is worth... they care that their kids live their and their friends and schools are nearby."

Ace, if the families are doing "everything they can" to keep the home, why are mortgage servicers having so much trouble getting owners to respond? Who then, are all these people who let their homes go into foreclosure without so much as a phone call to their lender? This is not some isolated phenomenon, apparently it is so prevalent that they had to MAKE ANOTHER gov't program to try to deal with it.

As for the emotional comittment, yes, some owners will have that to their home. I certainly do. But remember that RECENT buyers, the ones who bought at the top of the market and are most likely to be the most upside down, have only been in those homes 1-2 years, which is a short period of time to develop very strong ties to the community and friends. In addition, they could probably rent the same type home in the same community for much less than their mortgage, leaving ALOT more money every month to spend on their kids/families, etc.

[marina]

It's sad to see people loosing their dream home to foreclosure. Whatever may be the reason for this, but you just can't sit back & give up your home. When you are behind your mortgage payment say for 1 or 2 months it's better to do your homework about options available to prevent foreclosure & the best that may suit you to avoid it.
Time is definitely not your friend in this situation. Each day that passes makes it that much harder to get a work out agreement with your lender that you can live with. The home foreclosure process can take anywhere from a few weeks to many months, depending on the state law and the method of foreclosure the lender chooses to use.
Below is a link to FAQs about foreclosure
http://www.mortgagebuyerbasics.com/
foreclosure-faqs-about-foreclosure-assistance-companies

[sfvrealestate]

I agree with Shockg. And right now, there are almost as many Bubble blogs as there are foreclosures.

[Jingle_All_The_Way]

If I were 150k upside down on my condo, I'd walk. I wouldn't be able to buy a place again for a few years, but who would want to anyway in this market?? If I had to rent an apartment and pay cash for everything for 3 yrs it would be well worth it - Jingle Mail would essentially pay me 50k per year!

I'm not upside down on my condo, though, because I bought many years ago and refrained from "trading up" into the bubble madness. But, still...I know I'd walk if I were underwater more than six figures on my home.

[Laker]

sfvrealestate,
you agree with shockg since both of you are in the RE industry (i bet!)
Also i think that there are as many unemployed RE agents today as thenumber of foreclosures....

[baruza]

shockg, the point of the myth is not that foreclosures are a myth. Foreclosures are an extremely well documented occurence. Only someone in complete denial could ignore their existence. The point of the myth is that borroweres aren't deciding to voluntarily walk away; they are being foreclosed on because they could never afford to pay their mortgages in the first place--a fact that would have been discovered if the banks did their due diligence, as they were supposed to, in the first place.

And sfvrealestate, you might be the non-anonymous internet troll I've ever encountered. I guess it takes guts (or something) to put your name out there behind completely wrong factual assertions. But there you are.

Here's realtytrac's graph of current households per foreclosure auctions. Los Angeles has between 10-999 households for each foreclosure. A wide range, but even at the bottom, 1 foreclosure in every 1,000 households is a lot.

http://www.realtytrac.com/blog/photos/
foreclosurepulse_photos/images/15949/original.aspx

[Mousebender]

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