Bankers and housing market analysts are warning of a chilling new trend in the mortgage world: homeowners voluntarily defaulting on their loans even though they can afford to make the payments.
It's known colloquially as "walking away," or more jocularly as "jingle mail," for the sound your house keys supposedly make when you mail them back to your bank.
It's a way of saying that Americans are beginning to apply a cold financial calculation to home ownership: When a home's value has fallen below what is owed on its mortgage, they think it makes no sense to keep up the payments.
"That is going on, clearly, and there's lots of evidence of that in the market," Donald K. Truslow, senior executive vice president of Wachovia Corp., said in a conference call with investors last month.
A few weeks earlier, Treasury Secretary Henry M. Paulson had waggled a stern finger at homeowners contemplating walking away from affordable mortgages: Do that, and you're no better than a "speculator," he said.
Elsewhere, media reports and Internet postings are rife with stories about the trend and a supposed sea change in American attitudes toward debt.
But there's a major problem with all this talk about the phenomenon of solvent homeowners walking away: There doesn't appear to be any hard evidence that it's actually happening.
'Hard to quantify'
When pressed for the number of walkaways who could afford their mortgage payments, major banks and lender groups could not produce figures. Nor could the Mortgage Bankers Assn., the leading trade group for housing lenders.
Truslow acknowledged during the conference call April 14 that walkaways were "hard to quantify." A Wachovia spokesman said this week that "we have heard anecdotally that people are walking away" but that the bank had no hard numbers.
Bank of America Chairman and Chief Executive Kenneth D. Lewis, whose company is acquiring mortgage lender Countrywide Financial Corp., complained about "a change in social attitudes toward default" in an interview with the Wall Street Journal in December.
In response to questions from The Times, Bank of America spokesman Terry Francisco said the bank had seen indications that some homeowners were taking pains to keep their credit card accounts current at the expense of their mortgage balances, often by raiding their home equity lines to pay their cards, a reversal of traditional customer priorities.
But he said the bank did not have "firm figures" on how many homeowners were unnecessarily defaulting on their mortgages.
Others suggest that it may be impossible to find out.
"How would you know what someone's true ability to pay would be?" asked Todd Sinai, an associate professor of real estate at the University of Pennsylvania's Wharton School. "I'm not sure you could even come up with a definition."
At Fannie Mae, the government-chartered company that owns or guarantees billions of dollars in home mortgages, Senior Vice President Marianne Sullivan conceded that there was growing "folklore" about residential walkaways and said that the phenomenon was more likely connected to investors than people who live in their homes, or "owner-occupants."
"The vast majority of borrowers, we find, have been acting in good faith," she said. "If they get behind, they are interested in working with their lender."
Bruce Marks, chief executive of Neighborhood Assistance Corp. of America, a Boston-based nonprofit agency that helps strapped homeowners, said that the notion that legions of borrowers are deciding not to pay is an "urban myth" that largely reflects the mortgage industry's desire to blame homeowners, rather than lenders, for the surge in problem loans.
Shifting the blame
Marks and others assert that mortgage bankers have an incentive to blame the rise in delinquencies and foreclosures on borrowers skipping out on obligations they're financially able to meet, because that diverts attention from the lenders' role in the mortgage crisis.
"So many of the loans made were irresponsible -- for the borrowers and for the lenders," said Kurt Eggert, an expert on predatory lending at Chapman University School of Law in Orange County. "Lenders have an interest in painting themselves as responsible, even caring entities. They want to cast blame for the sub-prime meltdown as much as possible on their borrowers."
It is generally agreed that the real culprit in the meltdown is the proliferation of exotic mortgages that hit borrowers -- many with paltry down payments, and therefore almost no home equity -- with huge payment shocks in the early years of the loan. The new payments are often raised to levels that borrowers could never have afforded but expected to escape via refinancing or the sale of the house in a rising market.
When home values fell instead, their exit strategy evaporated.
Experts say that some supposed owner-occupants who are walking away may, in fact, be speculators in disguise: buyers who acquired properties as investments to resell for a fast profit. Investors, unlike genuine homeowners, will treat their purchases strictly as economic transactions.
Their decision to abandon payments shouldn't be seen as a sign that American homeowners no longer feel obligated to pay their debts, said Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA's Anderson School of Management.
"A number of [foreclosed] properties are actually investor-owned, not owner-occupied, and we have to be careful that we're not attributing to homeowners the actions of investors," he said.
Sinai, of the Wharton School, pointed out that homeowners have long been known to do whatever it takes to avoid foreclosure. They're concerned about maintaining their credit ratings and building equity in their homes, and they're typically invested not only in their properties but in their communities.
Historically, owner-occupants didn't default on their mortgages except under extraordinary circumstances, such as death, divorce, illness or job loss. Their predictable behavior helped keep mortgage rates low.
"If it's correct that there's a change in behavior, all the default and credit risk models will have to be recalibrated," Gabriel said. But, he added, "I have not seen one shred of data that conclusively or systematically speaks to that point."
One source of walkaway "folklore" may be services that purport to help homeowners skip out on their mortgages without long-term harm to their credit ratings.
Among them is San Diego-based You Walk Away, which launched a website in January offering to help homeowners "unshackle yourself from a losing investment and . . . Walk Away."
Co-founder Jon Maddux acknowledged in an interview, however, that the firm's typical clients are people facing genuine financial stress, because they either cannot make their current mortgage payments or know that an upcoming interest-rate jump will make default all but inevitable.
"We do have a lot of people who cry to us on the phone," he said. "They're under stress and don't know what to do. A lot of these people should never have got the house."