« Previous | Main | Next »

Recently while reading yet another article discussing the troubled mortgage market, I discovered the issue has even coined a new phrase, "Jingle Mail". The term refers to the idea of borrowers simply walking away from a mortgage due to adjusting interest rates and lower property values. The lender receives the borrower's house keys in the mail, hence, "jingle mail." Evidently, the subsequent problems caused by the lack of foresight and seemingly lack of any common sense whatsoever by both borrowers and lenders has brought this concept to life. As this alternative to making the higher payments for a property, which is worth less than the day it was purchased, gains ground within the US housing market I can't help but wonder how we ended up in this position to begin with.

For as long as I can remember, long before I was gainfully employed, I always thought a simple concept rang true, don't spend more than you make. So why did a number of people buy homes that they could not afford using a teaser rate or an adjustable rate mortgage ("ARM")? The answer is fairly simple, many people were betting the value of their home would increase, rather than decrease, by the time their ARM reset, allowing them to either sell quickly or refinance at a fixed rate, which may be affordable. As a nation with a negative savings rate, this lack of common sense does not surprise me. However, the lack of foresight by lenders to see the end result of lending money to individuals to purchase property they could not afford does raise issues about their current practices. Yet to date, it is difficult to consider the cause of the problem as anything more than a poor bet coupled with a complete lack of foresight and common sense by both borrowers and lenders. One thing is clear, as the problem gets worse, and it almost certainly will, we may all get much more familiar with the term "Jingle Mail."

Category(s): Random Thoughts
Posted by Jon Grupp at 04:42 PM | Permalink | Comments (0) | TrackBacks (0)