We have many important dates in history. In 384 BC Plato returns to Athens and founds a school of philosophy. In 1969 Neil Armstrong is the first person to set foot on the moon. And in 2008 we witness wedding invitations as a ploy to get people to pay their mortgages. Yes, we are rewriting economic history in ways that only a Beavis and Butthead episode could explain. We’ve had a lot of negative information coming out regarding housing and we need to share some love with lenders, banks, and all those folks that made 2/28 mortgages become something more than a date in February. I think the public is catching wind of this housing love momentum and is returning the favor. In today’s article, we will talk about wedding invitations, warm bonfires, and giving someone a spare key to join you in enjoying your maximum leveraged piece of real estate.
I Do…Commit to 30 Years of Overpriced Housing
Weddings are a time of happiness when two people decide to make a lifetime (or in California at least a seven year) commitment to one another. Wine is flowing, friends and family dance, and plans for the future get started. Many times these plans involve buying a piece of real estate. After all, if you don’t own a home you don’t love your spouse - this is common wisdom in all circles. With the current housing decline, many are faced with the prospect of not being able to pay for their resetting mortgages. Lenders have a hard time understanding how losing a job and not having income will hinder you from making your mortgage payment. They give polite calls, send out friendly reminders, yet many are still unwilling to negotiate with them. So welcome the new tactic. Remember how happy you were on your wedding day? Take a look at this interesting article by the Washington Post:
“Mortgage lenders hunting for delinquent homeowners who have dodged their phone calls and letters are employing aggressive new methods to track them down, potentially making every knock on the door or fancy envelope seem like part of the pursuit. Even wedding invitations are suspect.
…Wells Fargo estimated that it had no contact with about 30 percent of delinquent homeowners who went into foreclosure in 2006. Last year, it began testing envelopes in bold or unusual colors or resembling wedding invitations.
Last month, it began experimenting with offering $250 gift cards to delinquent borrowers who had been unreachable, said Joe Ohayon, a Wells Fargo vice president.”
It would appear that lenders are now making up for the lack of diligence they did when making loans. When lenders gave out a $720,000 mortgage to a person making $14,000 a year, how was it foreseeable to see any potential problems? There shouldn’t be any surprise that 30 percent of delinquent homeowners who went into foreclosure in 2006 have had no contact with Wells Fargo. In fact, lenders are going to put the fear of God into your non-paying heart that when you go out to your local dive bar, the person serving you your liquor of choice may also be giving you a notice to fork over the last few months of mortgage payments. From a play out of the White House playbook, some lenders are now sending $250 gift cards to delinquent borrowers. We all know that when you are $10,000 behind on your 700 square foot Real Home of Genius, $250 will go a long way just like the $600 Wal-Mart vouchers we are getting in May. Now these folks have $850 to pay for their incredibly absurd mortgage payment.
Playing with consumer behavior and psychology, the new tactic is heading toward offering the olive branch to delinquent borrowers. Apparently screaming into a phone and harassing people has a negative conditioning response on the human soul especially when the initial promise was that real estate always went up and the payment was fixed. However, many homeowners have their own solution to the problem. Lenders may get an invitation to a weekend bonfire.
Burning Down the House
The problem with many lenders is the assumption that people want to stay in these financial albatrosses. In fact, when looking at properties throughout the country in new subdivisions many deed/trust holders are actually Wall Street banks that I can assure you never stepped foot in these areas. Last time I checked, I haven’t seen many suits strolling along the inner cities of Los Angeles yet much of the toxic financing found its way here. What many of these so-called financial engineers miscalculated is that some homeowners were just as greedy as they were. And in a case of tit-for-tat, some of these homeowners are employing strategies that were once only in the domain of the uber-wealthy. Many are simply ignoring to pay for their mortgage. In a more brazen tactic, some are deciding to exercise the ultimate Hail Mary and set their home ablaze as reported by ABC News:
“Recession fears along with nationwide housing foreclosures have pushed some homeowners to take drastic and illegal measures.
Looking to cash in on their insurance rather than face foreclosure, some people have committed arson to avoid losing their homes.
Michigan authorities believe 38-year-old Sheryl Christman was one of those people, when she set her home ablaze Sept. 1. Christman was just three days short of foreclosure.
“It didn’t look like a typical fire. It didn’t look like something that caught on fire. It almost looked ignited,” one neighbor said.”
Christman, who faces up to 20 years in prison, pleaded no contest in her case and has yet to be sentenced.
“I don’t know if she thought she was going to get the insurance money or what,” said Tonya Miller, of Nova Star Mortgage Co. “But she won’t. … It will go to the mortgage company.”
My guess is we won’t see too many of these situations since most people in mega-jumbo mortgages simply do not have enough emotional connection to a home and will simply walk away. The stigma of foreclosure is fading away quickly and you will not carry a Scarlet Letter. In fact, in a few years those without a foreclosure on their record will seem as a minority. If you have any doubt about this, can you envision a person in a $350,000 California home with a $550,000 mortgage still paying away in 2010? Exactly. By then we may be upgraded to Target vouchers of $1,000.
The bigger irony in the above piece, and frankly from many mainstream media outlets, is they are asking the mortgage lenders and Wall Street firms for comments on what is occurring. If you aren’t aware, if the above company is affiliated to NovaStar Financial it is now trading in the penny stocks:
So riddle me this Batman, what happens in the above case if the mortgage company is no longer around once the legal investigation clears up? Let us go even further, say the insurance company is unable to pay, then what? Now you can see how deep this rabbit hole really goes. Let us not rain on this parade with details, now we will bust a move to the new dance that is hitting the nation, the moon walking away dance.
Moon walking Away from the Mortgage
There is a new phenomenon sweeping the nation. This isn’t the Macarena or Livin La Vida Loca, but it is just as catchy. It is called “walking away” and folks are practicing it throughout the United States. It is a rather easy dance. All you need to do is the below:
Housing Moonwalk
1. First, you put your right foot into an insane stuntman mortgage with terms reserved for those at San Quentin.
2. Next, you toss your partner pretending everything is okay and your payments will never reset while your home will continue to appreciate 25 percent per year.
3. This is the part of the dance that gets complicated. Your payment resets and your home isn’t worth as much as you paid for it. At this juncture, you are left assuming the life of a debt slave with an asset that will not break even for a decade and keep you on a diet of cat food and Cup-o-Noodles, or you proceed to do the next hot move, the moon walk.
4. In this next step you distance yourself from your home. No Project Lifeline. No Hope Now Alliance. These are old dances like the fox trot. What you do is bust a move and act like 007 and disappear from your lender.
5. When you get those wedding invitations you’ll pretend they are from your hated cousin Matilda and simply ignore them.
6. You may get tempted to do the turn and burn move here but this isn’t the way you want to go unless you want to go to jail (in which case you will soon be released given the Governors proposed cost cutting measures to balance the now $16 billion budget shortfall). At this juncture, accept the fact that you’ll have bad credit but everyone that is bad to the bone and moon walking has bad credit.
There are now places willing to show you how to moonwalk away from your home for a modest fee. Like learning to Tango without all the body contact. What is happening at a deeper level is a generational and societal psychology shift regarding housing. What occurred over the past decade is the commoditizing of housing and the growing desire of the McMansion life. 32 ounces of soda aren’t enough so you need 64 ounces. 42 inch televisions aren’t enough so you go to 74. Why drive a pickup truck when you can drive a tank? The simple logical extension is why live in a 1,500 square foot home when you can live in a 3,000 square foot home with a heli-pad and three-car garage? Why go broke on $10,000 of credit card debt when you can go out in fashion with $500,000 of mortgage debt? The desire to stay in this McMansion or overpriced box will now be a hindrance from all the other conspicuous consumption. How can one live in a mansion and eat rice and beans to balance the check book? The bottom line is many will not elect to fight for their home and will simply walk away. I discussed this point in greater detail after a 60 Minute piece showed a couple not only willing to walk, but glad to do it. All they were doing is exercising their right, just like the lenders exercised their right to lend them hundreds of thousands of dollars. What more did these lenders expect?
I think where people take exception is when we have an incredible budget shortfall and responsible tax payers are asked to bailout these speculators; that is Wall Street, lenders, agents, brokers, appraisers, and yes, buyers. Call it what it is. The media plays up stories of folks in Ohio or Michigan with $100,000 mortgages and struggles to pay the bill because of job losses. I can really understand these cases here and sympathize. The disconnect occurs when wannabe flippers bought $500,000 homes thinking they were going to flip them for $600,000 because they added platinum counter tops and gold toilets.
Wedding invitations are nice, but no thanks many will say. Vouchers are great but we already have more than enough stuff from China that we rarely use. At this critical juncture, many people are simply saying adios to their mortgages. 2008 will go down as the year wedding invitations were tossed into bonfires and folks all around the country started dancing the housing moonwalk.
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