Jingle-mail datapoint of the day

By Felix Salmon
October 12, 2009
explains how "because it underwrites low-cost housing for high-risk groups, the FHA's problems are particularly acute":

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Time looks at the problem of jingle mail, and explains how “because it underwrites low-cost housing for high-risk groups, the FHA’s problems are particularly acute”:

Homeowners of a new and unattractive breed are plaguing the Federal Housing Administration these days. Known as “the walkaways,” they are people who find themselves unable to meet their mortgage payments—and to solve the problem simply move out their belongings at night, drop their house key in the mailbox and disappear… In seven South Florida counties, walkaways have abandoned 3,000 FHA-guaranteed homes in the past twelve months.

The hat-tip goes to Mark Gimein, who dug this story up: it’s 47 years old, and it proves two things: (a) there’s nothing new about jingle mail; and (b) it’s entirely a function of jurisprudence and economics, rather than the Moral Character of the Nation.

Mark’s trod this ground before, but it bears revisiting: there are often very good reasons to walk away from your house. It’s never a first-best option: with interest rates low and banks under a lot of pressure to modify loans, it’s often possible to negotiate a deal whereby you get to stay in your house at a reasonable cost. But if your bank won’t be nice to you, then there’s no particular reason that you should be nice to them.


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Maybe that’s because the FHA has been pushing Cash-for-Keys so hard lately.

Note: the way the reporter defines a deficiency judgment in that article makes me want to deliver a Tanta-style smackdown:

In a deed-in-lieu, a borrower behind on the mortgage deeds the property over to the lender in exchange for a release from the obligation to repay the mortgage. A lender may or may not decide to waive their deficiency judgment rights, which is the right to make the borrower repay the lender down the road for the amount of money it took to fix up and sell the property.

Posted by Shnaps | Report as abusive

I’ve never understood this notion that you are being nice to your lender by fulfilling your obligations. Look, just because there are pre-agreed remedies to an issue doesn’t mean that it is OK to violate the agreement to lead to those remedies. Just like it isn’t OK to sell drugs even though there is a mandatory sentencing guideline.
The pre agreed remedies are to save time and let everyone know upfrot the consequences, but it doesn’t make it a morally acceptable choice.

Posted by Ledbury | Report as abusive

I agree with Felix. IMO, we have to rely on contracts to specify the rules of engagement. As long as there’s no fraud involved, walkaways are a perfectly “moral” or “ethical” option. Sure, we can question the logic of allowing agreements to be written where walkaways are part of the deal, but that’s a different matter.

The idea that we can somehow overlay extra-legal “moral” or “ethical” obligations onto contracts is just silly on its face. There are legal remedies for fraud and for acting in bad faith. Beyond that, our only option is to read the contract and weep.

Posted by Jim | Report as abusive

Corporations walk away from their obligations everyday. The “morality” of this action is almost never debated just the soundness of the action as a business decision. There is no reason to hold an underwater homeowner to a higher standard than a giant multi-national corporation.

Posted by muldoon | Report as abusive

Why not go the Australian way and make all mortgages full recourse?

Posted by Mike | Report as abusive