Tuesday, January 22, 2008
Jingle Mail
Calculated Risk takes a look at the transcripts of the recent conference calls from Bank of America and Wachovia, and notes that both banks are seeing a big increase in this practice.
As I've noted before, one of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes. These are homeowners with the "capacity to pay, but have basically just decided not to".How many homeowners could find themselves with negative equity? No one knows the answer, because it depends entirely on how far home prices fall, something that is difficult to predict and will differ from region to region. However, housing prices are clearly falling pretty quickly in most regions, and one can make assumptions. In an early December post, CR did some analysis and arrived at a figure of between 10 and 20 million homeowners that will likely have negative equity over the next couple of years.
Wachovia is seeing that happen now. Imagine what will happen as house prices fall this year and next.
In my opinion, it will be a fairly ominous sign should the term "jingle mail" achieve currency in the mainstream.
5 Comments:
By 
, at
Tue Jan 22, 04:18:00 PM:
Fortunately that mean old Bush Administration changed the BK laws. Run down these deadbeats and collect.
By 
Georg Felis, at
Tue Jan 22, 06:21:00 PM:
However the Tax value of the house will continue to climb, and to climb...
By Gary Rosen, at
Tue Jan 22, 10:43:00 PM:
Georgefelis:
"However the Tax value of the house will continue to climb, and to climb..."
Not in California. One of the provisioins in Proposition 13 that I did not realize until I bought a house about 12 years ago is that it limits reassessment increases to something like 2% a year. I'm now paying taxes on about half of what the house would bring on the open market. It's almost like rent control.
By Gary Rosen, at
Tue Jan 22, 10:46:00 PM:
I should add of course that this reassessment cap has been extremely beneficial to me since I bought my house before prices went through the roof (although they already seemed through the roof to me compared to where I grew up back East). Not so great for people who bought at the top of the market.
By Miss Ladybug, at
Tue Jan 22, 10:47:00 PM:
There is plenty of blame to go around for this housing mess: consumers who bought more house than they could afford, lenders approving borrowers for more than they could handle (this happened when I bought a house in AR just over 9 years ago - I knew I couldn't afford the payment for what they pre-approved me for, and I found something I COULD afford...), and I'm sure there are complicit realtors, too. Housing prices are artificially high in many markets and they need to come down. I'd like to be able to afford a house when I have established myself with a new career in teaching... But, I think it's going to be painful for all of us to get the housing market to correct itself.
