Saturday, November 15, 2008

Jingle Mail, Jingle Mail, Jingle all the Way!

Tis' the season for Jingle Mail. A new phenomenon whereby homeowners, send their keys back by mail after not making loan payments. And now, with a proposal to lengthen the time before foreclosure, it could mean more free rent. As property values decline, and a buyer's negative equity increases, it could becomes a mere business decision. Especially, if there was little or no down payment. Unfortunately, many of the loans made during this decade, were of this nature.

So far, we have only experienced the widespread defaults of subprime loans. As we look forward into 2009, those with average credit (Alt-A) and better credit (Prime) , will see their loans begin to reset. Option Adjustable Rate Mortgages (ARM) and Interest Only (I/O) are the next debacle awaiting us. These loan types will have an immediate effect on the Westside for buyers who bought throughout the 2000s. Banks fear the Jingle Mail option will become popular, after proposed loan modifications prove fruitless.

As Paul Simon once said in "50 ways to leave your lover"

Just slip out the back, jack
Make a new plan, stan
You don't need to be coy, roy
Just get yourself, free
Hop on the bus, gus
You don't need to discuss, much
Just drop of the key, lee
And set yourself, free

One last message for our financial leaders to help them solve our financial crisis:

It's The Loans Stupid !!!!!


Anonymous said...

What is your opinion why the loan modifications will not work? Seems like it should, but you think otherwise.

latesummer2009 said...

Most of the loan midifications are voluntary by the banks. Also, in many cases they are just extending the term of the loan or finding a payment that you can handle. I don't see significant reductions of principal, which needs to happen. Many people are terribly underwater and sinking fast as property values drop.

The way I see it, property will eventually drop to 50% of peak pricing and I don't think banks are willing to take a big hit.

Anonymous said...

These delays are killing the marketplace - and me - I am a buyer who will not buy until the prices of WLA RE drops to its "proper" level. So far, it is just starting to get "real".

latesummer2009 said...

I agree. Property is still way overpriced and eventually will revert back to more "Affordable" pricing. WLA sellers still have bubble prices in mind, perhaps since they overpaid. Throw in futile attempts of "reviving" the market through modifications, and bailouts etc... etc... just prolongs the enevitable.

IMHO, the sooner prices correct, the better.

Anonymous said...

'Most of the loan midifications are voluntary by the banks. Also, in many cases they are just extending the term of the loan or finding a payment that you can handle. I don't see significant reductions of principal, which needs to happen. Many people are terribly underwater and sinking fast as property values drop."

Latesummer, how does the property value loss factor in when a homeowner wants to simply lower their payment to stay in the home?

I realize the homeowner could be 'underwater', but aren't they just looking for an affordable mortgage for the most part on these loan modifications?

latesummer2009 said...

Why would you want an affordable mortgage payment on a house that is overvalued by 20-50%. You would eventually sell it at a loss, unless you plan on living in it for 10-20 years. Besides, why keep it when you could buy something for much less 1-5 years down the line. It doesn't make financial sense. Also, how long will they modify the loan? and under what conditions. Neg. Am ? etc...etc...

The banks are not interested in helping you, they are helping themselves. Since they are the ones who got us into this mess, I doubt they are going to get us out.

Anonymous said...

Latesummer....I think your point is that a homeowner should walk away from a house that has less value than when the homeowner bought it....but there are reasons to keep it:

-plan to be in the house long term
-tax deduction on mortgage/property tax
-Better than renting if loan payments can be brought into line at 31% DITI
-Helps over all neighborhood values not to walk away from house/loan.
-Better than foreclosure or default which could affect credit score

I think you are thinking in a short term way. This is the desirable Westside and while its overvalued now, it probably makes sense to stay in the house if the FDIC/Gov't can help you out.

latesummer2009 said...

I am not telling people what to do. That depends on many different variables and a person's situation. Your financial consultant can advise you on that.

What I said was, some people will choose the jingle mail option. I have heard of some cases where people actually closed escrow on a second home at a lower price and let the first one go back to the bank.

We are in unchartered territory here and "some" people tend to get very creative.

Anonymous said...

I agree with latesummer2009. I am also looking to buy but in the South Bay area and we have a very similar situation to you up on the WestSide. Prices are coming down, but still pretty high.

Loan modifications are shortterm solution. Home values will come down and it would make sense to walk if your home is overvalued even though your loan was modified.

I wish this would happen sooner, but if feels like it is going to drag on for some time. Their are a lot of people waiting for price reality to come back to our markets.

Anonymous said...

I think that's the key point "there are a lot of people waiting..." On the west side, there are still plenty of buyers, and plenty of pent-up demand. In venice, for example, about 50% of the property is owned by landlords who don't have to sell now. There is little up for sale/available...and i personally don't know anyone in venice who took an ALT A and can't make their payments. This blog and others have been claiming that those loans are going to reset and have a dramatic affect on the Westside for 2 years now.

latesummer2009 said...

Ye, Some people don't have to sell that have owned property for some time or, had large down payments. However, what about the other 50% you mentioned? If they bought within the last 5-8 years, chances are thay have an Option Arm (Pick-a-payment) or an Interest Only Loan and could be ALT-A or Prime borrowers. If you look at the mortgage reset charts, you would see that 2009 is when Alt-A and Prime really begin to reset, which will have an effect on affluent Westside properties. We have only experienced the subprime loans going into default so far. Alt-A and Prime are the next two waves.

Once this begins, why would you want to hold a depreciating asset that could be cut in half or more?

westsideagnostic said...

The trouble with the theory that 2009 resets will cause another wave of foreclosures is that many loans will adjust to LIBOR or 11th district COF + a margin, and may result in some cases (like mine) in LOWER payments. So unless these indicators move up (unlikely in a dead economy) that doomsday scenario seems unlikely

Anonymous said...

Yes, I am holding off on refinancing, because I will most likely have LOWER payments in Mid-2009 when my adj. resets due to the prime now. Why pay some Mortgage Broker (as shark-like as RE agents in my opinion) to do what the gov't is already doing?

Anonymous said...

Relax and enjoy life are living (maybe not owning) in paradise!

latesummer2009 said...

I do enjoy life, try to accept the numbers if you can. Tis' better to rent than buy right now, anyway.

beer234 said...

Things like Jingle Mail make me worry for the moral future of our country. When folks throw in the towel when an investment goes bad it reduces the trust that makes up our entire financial system. No wonder we have a credit crisis who would want to lend when even the righ renig on contracts.