Struggling Borrowers Decide to Quit Paying Mortgage
A recent publication at an independent site, iamfacingforeclosure.com, states that as mortgage prices increase, many borrowers are handing in their keys and calling it “quits.” A new term has been coined for the envelopes that lenders are receiving all over the country by borrowers walking away from their mortgage obligations: jingle mail. The popular “jingle mail” refers to the keys within the envelope sent by the struggling borrower. The publication further investigates if foreclosure is common and if it makes sense.
Foreclosure used to be a rare thing, typically resulting from job loss, illness, or a death in the family. But changes in the mortgage industry in recent years have altered the how and why of foreclosure.
Most of the borrowers who are walking away now are doing so because of increasing payments and depreciating assets. There is also the fact that the majority of the borrowers now have nothing to lose–they didn’t put anything down and therefore have very little invested.
Walking away can make sense for them because it can be less costly than going bankrupt in an attempt to save a single asset that is losing value by the day. Of course, this depends heavily upon where the borrower lives.
Different states have different rules for borrowers and lenders. For example, the state laws in California make it difficult for lenders to collect additional money after foreclosing and selling a property. In other states, like Michigan, lenders are allowed to go after the borrower for the difference.
This is really every lender’s worst nightmare. As homeowners decide to forego the duty to payoff mortgage loans in favor of foreclosure, banks will start to fold.
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