Contrary to the merry-sounding name, jingle mail signifies grim times for the housing market. The name comes from the sound house keys make when they’re in an envelope on their way back to the lender. It’s the sound of someone who’s given up on staying in their home and doesn’t want to deal with the problem head-on. Worse yet, it’s possibly someone who’s actually planned to walk away from a mortgage and leave their lender with several months of bad debt.
What is jingle mail?
When someone who has a mortgage decides they can’t or won’t pay it and are willing to give up their home, they mail the keys to the lender -- or at least, they did enough during the 2008 housing crisis to popularize the term. The more industry-correct name for this is voluntary foreclosure. The borrower no longer sees a way to catch up on their mortgage, or they calculate that to do so would put them in an otherwise untenable financial position, so they move out on their own schedule instead of waiting for the bank to foreclose.
Of course, this is a lender nightmare because it can take several months for a bank to foreclose, especially during murky economic times such as we’re experiencing now (nobody knows quite when or how mortgage forbearance will end), and if a bank has several borrowers who walk away from that much debt, they’re on the hook to the GSEs (government-sponsored entity, aka Fannie Mae, aka the Fed).
Can this term apply to renters?
Sure, though in the past it was less likely that landlords would let several months go by with rent uncollected. At the moment, they’ve had no choice -- and their own mortgage debt has not diminished.
And can it apply to commercial real estate? Lately, yes, and not only investors but real estate investment trusts (REITs) have been dealt a death blow, when, for example, an entire mall property or mixed-use development has in effect jingle-mailed all the keys because none of their tenants can pay anymore.
In commercial real estate, a voluntary title transfer is called a "deed in lieu" and is a strategic move to head off foreclosure. It’s viewed slightly more favorably in commercial real estate because it’s generally done to save money for both parties, whereas a residential walkaway does not factor in the impact to the bank whatsoever.
This is when a borrower deliberately and with forethought stops making payments, though they might be able to because the property has become a bad investment.
This is the term for borrowers who literally walk out on their mortgage and their home.
Origins of jingle mail
Not surprisingly, the term rose to popularity during the foreclosure crisis of 2008, but it’s been written about in connection with multiple Canadian housing crises, and it was used often around the mid-80s to early 90s, during the peak of the U.S. savings and loan crisis. Whenever there’s a massive economic event where millions of people can no longer afford their homes, the darkly humorous term finds popularity again.
In 2008, the situation was slightly different in that so many homes had significantly decreased in value. People found themselves paying tiny amounts of principle and mainly large amounts of interest on loans they’d taken out that they couldn’t really afford for property that had been overvalued and taken a nosedive. Things nationwide are slightly different now, in that homes haven’t necessarily decreased in value -- but the ability to pay has.
This is the term for when a borrower owes more than an asset is worth. Most people balance on the knife’s edge of it when they first enter a large loan obligation -- especially if their credit isn’t great -- because they’re paying mostly interest at the start.
The dubious morality of jingle mail
Is it illegal? Technically, perhaps not. But if it’s a strategic decision to keep money that you owe a lender and could pay, then it’s not exactly an ethical decision. When industry insiders get angry about this, they tend to not only get mad at the homeowner, but also the federal entities that couldn’t reduce the principal or otherwise come up with a solution that serves both parties. That said, if a lender has the way to go after a borrower and reasonable belief that they can collect, they will.
Jingle is not the way…
As we head into a new administration and hope every day for another COVID-19 relief package, avoiding the sounds of jingle mail from every which way is surely a priority. It is not ever any borrower’s first choice, especially those who might walk away from their family home and into a future of bankruptcy, bad credit, and instability.