On the myth of walking away

By: Housing Wire staff
May 12, 2008

The idea that home owners are walking away en masse is called out as an “urban myth” by the New York Times this weekend:

The blogosphere is full of tales of homeowners who supposedly are choosing to mail the house keys to their lenders rather than keep their depreciating homes. And yet “jingle mail,” the term for those tinkling packages of keys, appears to be far rarer than many seem to think.

Freddie Mac, the big government-sponsored mortgage company, estimates that just 0.14 percent of the defaulted mortgages in its portfolio involved properties that were abandoned by borrowers. Fannie Mae, another mortgage company, puts the figure in the single digits. Both companies deal in relatively conservative loans, so the total rate may be somewhat higher. Industry officials say they have no way of knowing for sure.

The question would seem to be how prevalent investor-owned properties are, and it’s worth noting that Fitch Ratings has singled out “walk aways” as a key reason behind increasing losses for MBS investors.

And in terms of investor-owned properties, it’s likely tough to ascertain just how many really are out there. We know that 20 percent of mortgage fraud — and there is plenty of it out there, as HW readers know — involved so-called “occupancy fraud.”

Here at HW, we tend to think that “walk-aways” aren’t the massive problem made up by media types, but we also think they’re more prevalent than industry types might want to believe — or even would otherwise be aware of, given the incidence rate for fraud.

We also think the problem is geographically centered in areas where Fannie and Freddie would traditionally have little market presence — places like California and Florida, for example.