Sounds of Foreclosure: “Jingle Mail”

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Picture this scenario, the mortgage company receives an envelope, what they believe will be this month’s mortgage payment, is actually the keys to the house instead. The homeowner has vacated the premises, sending in the keys as a sign of surrender, but this is really the awful sound of foreclosure. Imagine the horror. Well, this is the reality for many homeowners across the nation and a nightmare come true for lenders. This is the new phenomenon known as “Jingle Mail”.

I won’t attempt to summarize the article as everything written on the subject stems from the NY TImes article. However, I will discuss the shift in consumer psychology as of late. I couldn’t help but note the shift in attitudes around consumer psychology. This in turn affects attitudes towards debt, lack of problem solving ability and commitment to a solution. Where did it start? When will it end? These are all questions still looming on the horizon as lender fears are realized and homeowners’ dreams become nightmares. I don’t have the answer but I will take a stab at where it started and where it stands today.

Change in Consumer Psychology

There was once a time when people adhered to conventional personal finance wisdom. This included putting 20% down on a home (which I think is a load), saving for a rainy day and keeping credit card balances to a minimum (ie below 20% utilization). However, what we have today are consumers who believe in excess. Excess they can’t afford which lodges them up a creek with no way down. How did we get here? How and why did we become a buy now pay later society?

My assumption is that we wanted to get away from the old wisdom of our parents and do it our way. Buy bigger homes, afford nicer cars and essentially keep up with Barringtons across the street. I won’t pick your mind with psychological theory, but other than we want to be able to do it bigger and better with no concrete means of paying for “stuff”, while digging deeper into debt. Of course, there’s the “I want my kids to have more than we did“….”David just got a new BMW 7 series, maybe I should go out and get a CLS 550 instead of the Camry Amy and I talked about“….”Hmmm…Allison just bought a new pair of Prada heels, gotta get those Christian Louboutins!”…..and it goes on and on.

Do you see a pattern here? People are making financial decisions based on emotion and not facts. Facts which tell them they can’t afford it once the bill/payment comes due.

Attitudinal Shift Towards Debt Responsibility

When did it become OK to walk away from debt? A home you signed papers to honor the obligation for the next 30, in some cases 50 years. Uprooting your family and putting them through the process of foreclosure and bankruptcy because you signed up for a home you can’t afford at this stage in life. It’s selfish and irresponsible. Just because the bank says you can afford the mcmansion, it doesn’t mean that you can.

A home used to be something that people saved towards and made sure they were ready to purchase, but its become an ATM machine for some and biting them in the arse when its time to pay it all back. Homeownership may be part of the American Dream but it isn’t a must have on the list of things while on the path to building wealth. But we’ve some how made it ok with the proliferation of shady home loans justified by the desire to keep up with everyone else. When you know better, you do better.

Lack of problem solving ability and commitment to a solution

This applies to both the lender and borrower. Lender sticks the borrower with a shady loan and the borrower takes the loan due to a lack of due diligence. Who’s to blame? Both are, both entered into this agreement knowing that the end was never in sight. What do they do now?

Find a happy medium.

Lenders know that in order to stay afloat they need consumers to remain current on their debts. It’s not secret that the banks have been fleecing us for years. What with obnoxious fees to access and hold our money along with reducing our ability to counteract fraud with the new Check 21 act? I am well aware. However, this gives us more reason to bring our “A” game to the underwriters. This is a game, make no mistake. Banks are betting that you will NOT pay that note on time and they will then raise the payment and ding your credit report with a late payment and/or foreclosure. The borrower then panics and attempts to do one of the following: catch up on payments, miss payments, refinance, sell or in this case walk away. But, does the bank really win? They’re now stuck with a property that they are paying taxes on while losing out in their investment.

Does this seem like its going no where? It isn’t. The banks want their money, borrowers don’t have it and both are stuck. This is where I note the lack of a problem solving orientation towards debt. Lets be honest here, no one wins if no one pays. Borrowers’ credit gets jacked up and the bank loses their return on investment and losses trickle down the pipeline. As a nation we have to learn how to work together in tough situations. It works out for everyone when we do, not when we’re deadlocked in a stalemate waiting for the other to surrender.

Are you in this situation? There’s help on the way:

–Housing rescue: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on Federal Housing Administration loans from $362,790 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year boost to the cap on loans Fannie Mae and Freddie Mac can buy, from $417,000 up to $729,750 in high-cost markets.

Here are a few things you should consider from the BaltimoreSun:

•Contact your lender. Lenders are more open to working something out than they were even several months ago, whether that’s freezing your interest rate or temporarily forgiving payments you missed. Ask for the loss-mitigation department.

• Call a nonprofit housing counselor. They will act as a go-between and can have more luck getting to the right people. You can find a list of HUD-approved Maryland groups at www.hud.gov/foreclosure. Or call 888-995-HOPE.

• Inquire about a no-interest loan to get you current on your mortgage. The state of Maryland’s new Bridge to HOPE program offers loans of up to $15,000 to qualifying homeowners with subprime or exotic loans. Go to mdhope.org for details, or call 877-462-7555. City residents could also qualify for a $5,000 loan from Neighborhood Housing Services of Baltimore. You’ll need to be referred by a housing counselor.

• Refinance. The state has a Lifeline refinancing program – details at dhcd.state.md.us/Lifeline – and there is also the federal FHASecure, www.hud.gov/news/fhasecure.cfm.

• Sell. If you can’t do so for at least as much as you owe, ask your lender if it would approve a “short sale” and forgive the difference.

• Be wary of unsolicited offers of help. Foreclosure-rescue scammers are targeting homeowners.

Don’t forget about national nonprofits, NACA and ACORN. Let’s begin to make smart decisions about debt moving forward. There’s a lot of work to be done, but it starts with each of us. Making good personal finance decisions ensures that we will be in a good place financially 20..30..40 years from now.

(Photo by Aaron Issler)