Tuesday, February 12, 2008

Would You Send "Jingle Mail"?

There's a new buzz word in real estate - "jingle mail". No, it's not a letter from Santa. It's the sound of lenders receiving the keys to homes on which they hold a mortgage. As housing values plummet, many people find they owe more than their house is worth. If you have a fixed monthly payment that you can afford, you may want to keep making your payments and hope that, in time, the market will recover.

But what if your loan payments are going up and you can no longer afford them? What if, in order to stay current on your mortgage, you have to get behind on other bills? Is it worth it to keep putting money into a house that you can no longer afford and in which you have no equity? Many people are starting to say no and are allowing their homes to go into foreclosure.

Of course there are consequences to foreclosure. The biggest result is the reduction in your credit score. However, credit rating companies point out that the hit you take to your credit due to a foreclosure is less destructive than the one you would take if, by continuing to try and make the monthly payments, you end up in bankruptcy. And with the passage of Mortgage Forgiveness Debt Relief Act of 2007 , even the IRS is making it less painful to default on your home loan.

Foreclosure has always been an option for homeowners who, due to rate increases, job loss, etc., can no longer afford their homes. But lenders are starting to see foreclosure being used by homeowners who can afford their monthly payments. They simply choose not to.

Why would someone choose to go into foreclosure? Let's say you bought your house a few years ago for $500,000. Real estate values in your neighborhood have dropped and now similar homes are selling for $375,000. You could buy another home for $375,000, move in, and walk away from the $500,000 house. Sure your credit is wrecked, but after about 3 years, assuming you kept up on all your other payments, your credit score would recover.

So here's my question to you - when is it OK to just walk away from your debt? Are you shirking your financial responsibilities, or are you making a smart financial decision? Fifty years ago, divorce was often seen as an admission that you were not strong enough to keep a marriage together. Today, most of us are more accepting of divorce as a way for two adults to move on with their lives. Are we seeing the beginnings of a change in attitudes towards foreclosure? Rather than a stigma, will foreclosure simply be seen as a way to better manage one's assets?

What do you think? Send me your comments - I'd really like to know if you think we're on the edge of a change in attitude towards foreclosure.

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