We’ve all heard about the consumer’s return to fiscal responsibility: Using credit less, looking for bargains more, and living with one’s means. But in contrast to those folks who are being more cautious with credit, there is a significant rise, too, among folks who’ve decided to throw in the financial towel, and walk away from their debt.
This week, a story from CNN caught my attention, which focused on the matter of “walking away from the mortgage.” Frequently, the decision is made by people who feel foreclosure is inevitable, and they’re tired of fretting about it. But for others, it can be a simple business matter: Do I keep paying for an asset that is worth far less than the mortgage balance… or is it more fiscally prudent to simply walk away?
This topic is getting more and more attention, recently. A recent NY Times Magazine story referred to the phenomenon as “Voluntary Default.” An excerpt from the article offers perspective: “Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their home is worth.”
Implications: There’s been a lot of talk, recently, about how banks are still not very eager to lend money. I would submit that if the consequences to credit abuse remain meager, this conservative lending mentality can be expected to continue.
I’m wondering what the “new” qualified buyer looks like. How will “credit worthy” be defined as we move forward. In the past, someone who had a home and a family was considered a pretty safe bet. And if you were in good standing with the “big three” credit watchdogs, you could expect attractive terms and a long leash. But folks with homes, and families, and good credit ratings are scattered throughout the Great Recession… having either over-extended for the first time (or having it catch-up with them for the first time), having lost a job, or for some other reason, finding themselves on the receiving end of a late payment notice.
I'm not in the business of making predictions, but I'll make one here: The term “qualified buyer” will be given a higher profile in the marketing effort, rather than being relegated to the fine-print disclosure at the bottom of a print ad or the throw-away disclaimer at the end of a commercial.
Ironically, it seems to me that consumers who are most freely offered credit in the future might be those who are most likely to avoid it. (But then, I suppose that has long been the case.) For more insight about the way many consumers strive to use credit more responsibly, see this May 2009 story from CNN, or visit the “implications” section of this Elm Street posting from last December.
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