Jingle Mail in Detroit: One Family's Choice

The other morning I read an unusual yet not uncommon story about a homeowner in Detroit, MI, who abandoned his underwater mortgage in a nice suburb in favor of an apartment. As I noted in my blog a couple weeks ago, more homeowners are making this choice. What was unusual was that the homeowner in question was a city councilman running for the mayor of Detroit.

It's true that Councilman Kwame Kenyatta is not the only politician in Detroit or elsewhere with mortgage trouble. Still, we think that public officials are above the dilemmas that face the rest of us or that rules are bent to make things happen for "the rich and powerful." In this case, the councilman bought the home for $225,000 back in 2005. Now it worth $100,000. His $2,600 per month 6.625% mortgage will be nearly doubling to 11.625%. His family income of $81,000 is less than it was when his wife was working. When the family tried to work out a workable loan modification plan with their lender, they were turned down. Though this was their dream house, the family decided to walk from the mortgage and abandon the house by mailing the keys back to the bank - "jingle mail."

Jingle mail is a sound banks hate to hear, as it puts one more house back in "inventory." Technically, the practice is not illegal, although the banks could come back against the homeowners. In Detroit, where the median price of homes is $5,800 (as compared to $66,000 in 2001), 16,000 homes are in foreclosure, 20% are unemployed, and the economy continues to crumble, a bank might not bother.

The voters of Detroit and virtually anyone with an opinion are asking questions like, "If he can't manage his finances, is he fit to lead the city?" "Doesn't anyone honor a contract anymore? After all, he promised he would pay even if it wasn't convenient or in his best interest to honor the terms."

In Kenyatta's case, these may be fair questions, but undoubtedly he thought about them before packing up and leaving his home for a rental last December. In the city, he has a reputation as someone who looks at all sides of an issue and as someone who has spoken out against neighborhood blight. He knew that voters would second guess him and late night comedians would make him the butt of their jokes. His decision could not only hurt his candidacy and his neighborhood advocacy but his neighborhood as well. Bottom line though, he made the best choice for his family.

His case illustrates a number of points very applicable to us in sunny Florida:

• Though many people will be helped by current federal and lender -sponsored programs, some won't qualify.
• These people will have to make a choice to try to stay in their homes, try to keep up with the payments, and hope that change in the market or a new government program will pull them through. Of course, those people who have lost their income or who have sunk too far underwater may not have too much choice.
• Otherwise, they will leave their home, either by walking away, selling it at short sale or some other way, or losing it to foreclosure.
• They will then go on with their lives, maybe better than ever.

In the case of would-be-mayor Kenyatta, his family relocated to a beautiful rented condo where he pays less than his former mortgage. Not everyone can regroup their life and shattered credit score in such surroundings, but the fact is that those who lose homes to foreclosure are able to happily resettle elsewhere. There's not much good data yet on what happens to people after foreclosure or other circumstances where they are forced to leave their homes, but there is no indication that their next step is homelessness.

As we have said here before, houses, cars, jobs all come and go, but happiness in life has little to do with any of that. If you find yourself having to make a difficult situation due to mortgage issues, call your lender about relief options, take advantage of the best option available to you, and move on!

If you need help with a short sale or foreclosure in Central Florida, call Janice Petteway at Exit Real Estate Results.