Jingle Mail

Jingle Mail

Posted by Tawan , Reader : 197 , 18:46:36
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Thailand has so many problems facing a global economic slowdown. Consider a falling US dollar long-term Baht appreciation affecting key exports in electronics. Khun Tarisa and PM Samak’s brainstorming ideas to grow Thailand’s economy, balancing monetary and fiscal policy in an inflationary period, convincing investors to invest in Thailand amidst growing risk aversion, drying up of liquidity and credit markets, while at the same time, analyzing shock risk assessments and contingency plans in the global financial and trade sectors worsening environment.

But as always people believe it is always greener on the other side of the fence. Let us suppose we were on the other side of the fence, all we would have to worry about is “Jingle Mail”.

Jingle mail is homeowners that decide to walk away from their house and mail the keys back. Instead of fighting to make mortgage payments, for the first time since the 1930’s depression, they walk away. Historically lenders knew that no matter what people would pay their mortgage first, before going to the doctors, before paying credit card bills, not hiring a baby sitter, not going on vacation, not saving for college, not saving for retirement, eating microwave dinners, working two jobs mother and father leaving the kids with two fathers instead of the traditional one wage earner of father and mother. In other words lenders knew that nothing came before making a 30 year mortgage payment that is until 2005 arrived. All of this was done to save the American dream of owning a house.

What are the consequences of “Jingle Mail”? Well it is kind of different in an advanced economy. You can forget about the worries of lending your High School friend 10,000 baht and wonder if she will ever pay it back or not.

In an advanced economy these are the consequences.

It is called a consumer credit report. Miss one payment and 100 points are shaved off of your credit score. Miss three payments and 300 points are shaved off and the bank forecloses on your house and reports it to the credit bureaus. The next seven years you have bad credit. This means it affects any other credit you may have such as credit cards that may be cancelled or raising of interest rates. Your car insurance rates go up or any other insurance you may have goes up, you may not buy or rent a house and you may lose your job. Every financial transaction that you make is kept in databases that employers, schools, companies etc all have access to and follows you wherever you go so starting over somewhere is not an option. The results are for the next seven years you may be homeless and unemployed in a recession.

Popular opinion is that these are all sub-prime homeowners that never should be allowed to own a home in the first place. The American dream of a bank owing your home for 30 years should be reserved for citizens of the middle class or higher.

However, Federal Reserve Chairman Ben Bernanke recently,” estimated that about 45% of foreclosures in 2007 were on private, near-prime or government-backed mortgages. And that means plenty of people who thought they were fine are facing catastrophe, never expecting that their homes would be worth less than the purchase price”. Beyond the help that Federal Reserve Chairman Ben Bernanke is offering in opening up the Federal Reserve‘s overnight window to Wall Street to stop systemic risk of the global financial system. We here in Thailand are very grateful for this as we do not want a systemic meltdown either. Private help is available for homeowners in the US. In California, “youwalkaway charges homeowners $995 to guide them through the process. ("If you are walking away from more than one property, the second property is half price," the company's Web site says.)
YouWalkAway has sold its advice to about 1,000 customers and has opened operations in 11 other states: Arizona, Colorado, Connecticut, Florida, Illinois, Nevada, New York, Michigan, Ohio, Oregon and Washington”

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Before you start thinking that sub-prime homeowners are just owners of crack houses and do not deserve help read a typical “Jingle Mail” customer’s story. “It was a far different tale three years ago. The Tampa resident, her husband and two children moved into a $400,000 three-bedroom home. It had a pool and faced the beach. The couple thought they could afford the $2,100 monthly mortgage payment on their $160,000 income. It sounded like a good deal. There was no down payment, and they paid $9,000 for closing costs.
Then life for Linda and her family suddenly turned sour.
The bank notified them that their monthly payment had been miscalculated, that taxes and insurance for two years should have been included. To fix its mistake, the bank increased Linda's monthly payment to $5,000 a month to get what was owed. And the family moved out of the house before the bank began to foreclose. "I left the keys in the door, hanging in the door," Linda said.”

This brings us back to the starting point of the current crisis that started in housing. I know that April is a very busy month for everyone the IMF included that has released thousands of pages of analysis including the WEO World Economic Outlook Report that has our government leaders in Thailand working overtime. MAD (Mutual Assured Dependence) has all of us connected to the problem in the world. But in all the pages I did not find anything to fix the homeowners problem. Even watching Federal Reserve Chairman Ben Bernanke well rehearsed but nervous responses in front of Congress open door session. One Senator kept asking the same question that never got an answer over and over again as a whole does not homeowners as a group hold the same systemic risk as Bear Stearnes did?

I kept wanting to ask why not open the Federal Reserve’s Overnight Window to individual homeowners also not just Wall Street? It would give the Feds something to do since they were sleeping on the job in the first place and did not even know Bear Stearns was going under until the night before and had to hire outside help to study the books.

I will wait for my answer.