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House of Cards Part Two

Written By Brian Hicks

Posted January 28, 2008




It was a tough call, but after two days of heated debates the 80 members of the American Dialect Society finally chose "subprime" as their word of the year for 2007.

In fact, interest in the word was so wide for the year that it spun off a totally new category of words for the group related to both real estate and mortgages.

Also included in the group were these gems that worked their way into the lingo as the lending/housing bubble finally began to implode.

  • Exploding ARM– An Adjustable Rate Mortgage whose rates soon rise beyond a borrower’s ability to pay.
  • Liar’s loan/liar loan-Money borrowed from a financial institution under false pretenses, especially in the form of a "stated income" or "no-doc" loan which can permit a borrower to exaggerate income.
  • NINJA -No Income, No Job or Assets. The worst of the worst. A poorly documented loan made to a high-risk borrower.

But as commonplace as those words became in 2007, a new term is about ready to make its run for top honors in 2008.

It’s called "jingle mail" and it’s a lenders worst nightmare.

That’s the term used to describe borrowers whose situation is so completely dire that they simply mail back the keys to the bank and walk away for good.

The reason?

Rising payments and upside down loans make jingle mail the only logical choice.

That was the part of the material covered recently when Steve Kroft of  60 Minutes fame took a look at the housing bubble in the rubble of  real estate’s ground zero- the state of California.

Here’s an excerpt from the video:

"Matt and Stephanie Valdez say they knew exactly what they were doing when they bought this small two bedroom house for $355,000."

….They cannot refinance because the value of the house fell below the existing mortgage. They say they can afford the higher payments but see no point in making them.

Matt: The value of the house keeps going down and the payments keep going up. Where’s the logic in that?

Stephanie: Why make a $3200 a month payment on a 1200 square foot home? It makes no sense.

Steve Kroft: But that’s what you agreed to do when you bought the house.

Stephanie: Fine if the value was going up. The value is going down.

Steve Kroft: You are saying essentially you are going to stop making payments.

Stephanie: The only advice we’ve gotten so far is to walk away.

Of course, unfortunately for all the lenders that made all of those awful loans as the housing bubble peaked, that’s exactly the advice that so many "homeowners" will begin to take as property values plummet.

So remember those words "jingle mail", because odds are you’ll be hearing them as often as you heard the word subprime last year.

Because as I wrote in my own article entitled "House of Cards" over a year ago, the mortgage debacle was "built on lies and it’s going to collapse."

Of course, it is good now to see that mainstream media has begun to notice the carnage.

Kroft’s story, by the way, is fantastic in many respects.

Here’s link to the entire video.  It’s well worth your time.

All of which leads to one point to ponder as the one guru after another claims that the nation’s banks have bottomed.

How exactly can the banks that made all of those liars loans bottom when housing continues to free fall to the point the where people are mailing the keys back?