UPDATE: The implications of higher debt without completing higher education

Observation:  Two weeks ago, I posted a story about the higher debt load required of people who pursue higher education (click here to see “An Educated Risk.”)   Today’s Washington Post considers that issue from another perspective:  People who pursue but do not complete their higher education; ultimately, the problem of having huge debt is compounded by the fact that they do not have the degree that could lead to a higher-paying job.  Click here to see the Post story.

Implications:   One must wonder whether we are approaching a tipping point, of sorts; one that imposes adjustments to the way college educations are sought, delivered, and paid for. 

This may not seem like a consumer-trend issue, at first glance, but I think it definitely is one.  For decades (perhaps centuries), there has been a close correlation between education and future earning power.  If an economy is such that less educated people are likely to earn less money, a fundamental shift in consumption is likely to occur if large numbers of people decide college is either financially out-of-reach, or not worth the risk.   

Mike Anderson, for the Elm Street Economics consumer trends blog. A service of The Center for Sales Strategy, Inc.

Don’t bank on it: How pensions and investments are changing in the mind of the consumer

Before I clean the weekend’s news stories off my desk today, I’d like to share one that came from Saturday’s New York Times, which illustrates what future tensions could look like as spending cutbacks trickle-down from the federal level to the state, city, and even school district level.

In this article, former employees from a small Rhode Island town are facing a cutback in pension payments from the city they used to work for.  (At a time when bondholders are seeing no such cutback.)  Click here to see the story.

Implications:    As the story suggests, it is more likely that a court—rather than a city council or mayor—will decide the outcome of this case.  I raise the issue not for its political ramifications… but to further illustrate the creative fallout that continues to make itself known in the wake of the recent recession.

In what ways might these kinds of headlines change the way consumers save for retirement?  In what ways might these issues cause 45-64 year-old consumers to become even more cautious about spending (since they are close in proximity to retirement)?  In what ways might these stories discourage younger folks from participating in a pension plan, 401K or other employer-sanctioned investment plan?

If you’re in the financial planning, investment or banking business… life just threw a whole collection of new questions your way!

Mike Anderson, for the Elm Street Economics consumer trends blog. A service of The Center for Sales Strategy, Inc.

Financial reform still far from a sure thing

In the midst of the Great Recession, certain investment banks and banking practices were cast as culprits of the financial meltdown; it was all the perfect fuel for legislative action and sweeping reforms in the banking industry.  But according to a story in today’s New York Times, many of those reforms are failing to gain traction, as the rulemaking phase of the process faces one delay after another.  Click here to see the story.

Implications:  While many consumers accepted personal responsibility for their share of the financial meltdown (the over-use of credit, taking equity out of their home, etc.), many consumers also felt that portions of the financial industry were at least partially culpable for many of the woes faced during the Great Recession.

If the reforms intended to remedy banking practices are now going stagnant, it could represent a strong opportunity for almost any financial institution, or any sales organization which offers financing or financial services as a part of the transaction:  Transparency.

Does your organization thoughtfully explain the pros and cons of any investment instrument or financing alternative you offer?  Do you promote that transparent communication in your marketing messages?

There is one thing will protect the consumer better than even sweeping banking reform (if/when it actually comes to pass)… and that is help in making an informed choice.  And that’s something you can offer now.

Mike Anderson, for the Elm Street Economics consumer trends blog. A service of The Center for Sales Strategy, Inc.

Broke-ville, U.S.A. (The deferred impact of recession on city governments)

Today’s New York Times features an important story about Hamtramck, Michigan: A city that has fallen on very tough economic times, and is considering all options. The reason I believe the story to be relevant is that Hamtramck, Michigan could be just one example of an issue that we could surface again and again over the next two to four years… as short-term budget cuts fail to solve long-term financial issues. Cities are facing the perfect storm of reduced revenue from three years of flat retail sales, falling property tax assessments, and shrinking state and federal aid.

Because most consumers live in a municipality of some sort, this story is relevant to consumer trends. Click here to read the full article.

Implications: Whether or not cities begin to claim bankruptcy, they have begun to cut services and will likely need to raise taxes in order to return to functionality, if not solvency.

How will your business be impacted by this chain of events (reduction in services, increase in expenses)? How will your consumers be impacted? Will new business opportunities arise that replace services formerly delivered by a town or municipality?

Mike Anderson

Banks regaining *some* customer approval

Few industries took a bigger reputational hit than banks during the great recession. From liberal lending by mortgage banks, to the bundled securities (many involving sub-prime debt and illiquid assets) offered by some investment banks, to the T.A.R.P. “bailout” money offered to many commercial banks… there was plenty of negative press to go around.

Some of the bad feelings toward select banks were well deserved, but other hostility may have misdirected toward all forms of banks, including some who were impacted by, but not necessarily responsible for, the financial meltdown of 2007-2009.

It seems as if some of those negative emotions could be starting to wane, according to this story from Media Post Marketing Daily. Click here to see it.

Implications: I think that as more time passes, consumers will realize the complexity of the financial crisis that was the great recession. It was not an industry that brought all this hardship on, but certain players within that industry.

Surviving banks—even those who brought no harm to their customers or the economy—must nonetheless realize the importance of explaining their role in the community they serve… or risk being unfairly cast with an industry that some consumers are still slow to forgive.

Few consumers realize that some banks were “encouraged” to take T.A.R.P. money, even thought they did not want it. Fewer still realize that it wasn’t a “bailout,” but a loan, to be paid back with interest. Fewer still realize the many ways their local bank, thrift or credit union serves as a vital cog to business, employment opportunities and prosperity in the community.
If you work in financial services, it might be prudent to educate your customers thus, rather than waiting (or hoping) for your customers to figure it out.

Mike Anderson

UPDATE: More details on investigations into foreclosure practices

Yesterday, I offered some thoughts about unintended consequences related to the moratorium on foreclosures [see this posting dated Tuesday, 10/19/10]. Within that story, I shared reports suggesting that investigations into the improper execution of paperwork would likely continue.
This morning, the New York Times offered an article that gives more clarity as to the intention of those on-going investigations, both by the federal government, as well as state attorneys general. Click here to see it.

UPDATE 10/21/10: More Times coverage about the emerging legal conflict.

UPDATE 10/21/10: Another Times story... this one about assurances from the U.S. that the foreclosure mess won't impact wider economy.

Mike Anderson

Unintended consequences in foreclosure moratorium

A story in today’s Washington Post offers one perspective on how the moratorium on home foreclosures backfired: People at risk of foreclosure—or those who are already in-process—could assume that no consequences exist if they simply stop making their house payment (or at least, that any repercussions would be deferred.) Click here to read the story.

The moratorium—not mandated by the federal government but voluntarily adopted by Bank of America, and on a limited scale by some other lenders—was designed to provide time for investigations into improper foreclosure practices, such as having paperwork signed “in bulk” by staff members without the documents actually having been read by bank employees.

Bank of America said today that it would end its ban on foreclosures in 23 states, and begin efforts to seize properties beginning next Monday (October 25). That’s according to this story in the Los Angeles Times (click to link).

Implications: While there were apparently procedural errors in the way some bank employees were handling their foreclosure workload, I’m not hearing anyone say that the eventual outcome in these foreclosure cases would have been different. So a mandated delay would have only extended an already painful problem.

For as long as foreclosed homes remain on the market, the real estate sector will still face a supply-and-demand problem that prohibits that category, and perhaps the entire economy, from healing. Perhaps a smarter way to deal with this situation (IMHO): The White House announced today that it is considering a criminal investigation into the way some mortgage lenders were handling their foreclosure process, according to this story from today’s Wall Street Journal (click to link).

Consumers need to feel confident in both the real estate and mortgage industries before the recovery can gain any real traction. As an example of the turmoil that can keep the market unsettled, see this story from last Friday’s New York Times (click to link).

Consumer confidence starts with transparent transactions… and a consumer that feels like they know what to expect. What can you do—regardless of what you sell—to help customers “connect the dots” about how and why you do business the way you do?

Mike Anderson

No more credit? Not so fast.

A recent story in the New York Times suggests that the numbers showing cut-backs in credit might have more to do with bank write-offs than cautious consumers. Click here to read the story.

Implications: I’ve been as vocal as anyone about consumers’ apparent aversion to credit. But we should all stay tuned to the facts. If bank write-downs make the numbers look a little more extreme than they really are, then we should make note of that possibility.

That said, I still think the “live now, pay later” mindset—where consumers thought nothing of racking-up frivolous charges on their credit cards—are over. I think most folks realize (more than ever) that credit is to be used with caution; more as a tool to help manage household cash flow than to buy things one cannot reasonably afford.

(Another factor in reduced credit balances is the tighter credit market, which might make new borrowing a little less attractive or convenient for some consumers.)

Mike Anderson

Foreclosures: Is it that they can't pay, or that they won't pay?

This morning’s New York Times featured a story with an interesting perspective on the housing meltdown: A disproportionate share of mortgage defaults are coming not from the broke or poor, but the affluent. Click here to read the story.

Make sure, in particular, you see this graphic.

Implications: If an expensive house was purchased more as an investment than as a place to live, it seems many among the wealthy are deciding to do what they might do with any investment gone bad: Dump it.

Does that change your perspective, with regard to people who’ve been through foreclosure? It might mean that not all foreclosed homeowners are poor or broke. Indeed… the converse could be true; the foreclosure path was taken because the family could afford to get out from under a house that was up-side-down.

Mike Anderson

The chasm between foreclosure and hanging-on could be academic

A recent newsletter from Iconoculture led me to a story from the New York Times, which suggests that people who were good at math may have been less likely to lose their home in the recent burst of the real estate bubble. The basis for the story was a study from Columbia University.

Implications: Were “creative mortgages” more attractive to people who didn’t really understand the ramifications of the math? Were alternative solutions too difficult for some folks to understand… leading them to believe that foreclosure was the only way out?

There is a lot going on behind this story… points worth pondering as we all try to learn from history, rather than repeat it.

Mike Anderson

Las Vegas... rolling the dice again (on housing)

A fascinating story caught my eye in a recent edition of the New York Times: More new homes are being built—at a remarkable pace—in markets where the real estate market was hit hardest, like Las Vegas. Click here to read the story.

Implications: While this story focuses largely on investors, bankers and other speculator participants, it also suggests that home buyers are less inclined to buy homes that were the subject of foreclosure. Two reasons: First, individual homebuyers have a hard time competing with investors that are swooping in with cash. But second—and most impressively—the story suggests that home buyers are so fixated on the latest, greatest homes that they will not consider one that is two or three years old… even if it is new.

How long is your inventory attractive? When does it spoil?

Mike Anderson

UPDATE: The culture of credit

After posting my article about credit this morning (The culture of credit: A story of extremes), I was greeted by another story on the topic when today's New York Times arrived. It was a very good read.

The story suggests that by June of this year, more than five million mortgage holders will be living in a home that is worth 75% of the remaining mortgage against it (that represents roughly 1 in 10 homes); the industry now refers to this condition as, "House Arrest." Click here to see the story.

The culture of credit: A story of extremes

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.

Mike Anderson

Real estate: Recovery continues to vary by region, as well as by market segment

Few categories were hit harder by the Great Recession than real estate. Where I live—near Minneapolis/St. Paul, Minnesota—it seems like the market has begun to turn somewhat. A thriving segment has blossomed, comprised of realtors, contractors and carpenters who’ve made “flipping” a major focus. Modest, or even abandoned, damaged homes are bought on the cheap, then overhauled completely, and sold at a price that is both reasonable to the buyer and profitable for the seller. Such deals are available in a wide variety of neighborhoods and prices… from entry-level to near-luxury homes.

Some concern has been voiced about whether such "opportunity" sales might be extinguished in the absence of incentive programs. (See this story from Bloomberg.)

People still selling homes here could fit into two distinct categories. First, those who have owned a home for many years and did not withdraw significant equity from their property through refinancing or home equity loans (these folks can still look at this real estate market as an opportunity to upgrade). Second, those who are essentially forced to sell by changes in life stage or circumstance (such as a job change or job loss, change in marital status or family composition, a relocation inspired by health- or age-related issues, etc.)

Traveling and communicating with folks across the U.S. as a part of my work, I am reminded that some markets remain more deeply affected than others, when it comes to the real estate category. It’s easy to find evidence in the headlines: A December story in the New York Times explained how the migration of people to the Sun Belt has slowed dramatically. More recently, this in-depth report from CNN Money explained how the real estate downturn was created—and has impacted—the state of Colorado. (Watch the video immediately below, or click here for the link.)

Implications: I found the story from CNN particularly interesting because of the way it focused on cause and effect. It suggests a combination of three issues behind most foreclosures: 1) Buyers assumed (wrongly) the value of their property would continue to appreciate, 2) Buyers were not educated enough about the type and terms of the adjustable mortgages they were getting themselves into, and 3) Some folks just bought a home that was out of their financial reach.

Going forward, one could easily assume that folks will be cautious about the extent to which a property might appreciate over the length of anticipated ownership… even driving more people to rent longer before buying, or put-off their home purchase until they know they’re sure they will be living in an area for a long time. (Thus, issues like neighborhood quality, schools, and jobs become even more important.) One might also assume that future buyers will be more careful and educated in the future; beyond someone who’s willing to drive around and show houses, future buyers might expect much more expertise from their realtor or mortgage broker, as well as a more transparent buying process. And finally, one could expect more consumers to buy within their reach, drive either by their own sense of caution or one imposed by their financial institution.

Mike Anderson

Everything but the kitchen sink

One of the reasons I see home improvement as a bellwether category for the recovery: Home destruction was a bellwether of the recession.

My wife and I were among those folks who were able to sell one home (by choice) and buy another during the recession. It was about one year ago we learned that our existing home had sold, so we were shopping the menu of foreclosures and short-sales with considerable intensity… to find our real estate “deal of a lifetime.”

Among the candidates, we saw a remarkable number of homes that had been stripped, if not nearly destroyed, by the people who had recently lost or abandoned their houses. In one of the most extreme examples, we found a beautiful house that had been stripped of kitchen cabinets, water heater, central air conditioner, woodwork, several plumbing fixtures, electrical switches and recepticles, and a fireplace mantle. (The listing price of $199,000 belied its original selling price of $400,000... about a year earlier.) Almost everything had been removed… including the kitchen sink. Not taken but damaged severely in an apparent fit of rage: The furnace, the bathroom fixtures, and the main waterline supplying water to the house (which was smashed below the shut-off valve, resulting in a flooded basement). A recent story in the New York Times shows that our findings were particularly rare... at least, not in recent history.

My wife and I settled on a home that needed a little less repair. But right about now, I’m confident that lots of folks who found their way into a “deal” on a broken-down home are discovering that the repairs involved are over their heads.

Implications: Electricians, plumbers, carpenters and other sub-contractors are less busy with new home construction, due to the over-supply that generally exists in most real estate markets right now. The good news is that existing home services should be a very hot category, fueled, in part, by the number of people who are taking advantage of the current real estate market to take a home from “abandoned,” to “amazing.”

That service sector is further enriched by our departure from the “disposable economy.” More people are hanging-on to appliances, cars and other durable goods for longer periods of time. (Think of it as “stretching the buying cycle.”) This is especially true in the home… where many people might be “upside-down,” owing more against their home than it could be sold for, given current real estate prices. Many homeowners might find it difficult to sell and then buy into their dream home… and are thus more likely to turn to home improvements, as a means of making their current home more closely conform to their dreams.

Various local and federal incentive plans stand to put more buyers into the real estate market throughout 2010. But for now, home improvement (sales, as well as service) is likely to be the category that benefits nicely from the current “fixer-upper” climate.

Mike Anderson

Rediscovering the consequences of credit

Over-extended credit and turmoil in the banking industry played a major role in the Great Recession of 2007 – 2009. That’s why these two stories from Media Post caught my eye quickly this morning.

Driving auto delinquencies down. This article cites data from Experian in suggesting that late payments are falling for automotive. Further, the average new loan term has dropped from 63 months to 62 months, year over year.

Mortgage paper… or plastic? This story highlights a report by Cardbeat/ACG, indicating that many consumers are now more likely to pay their credit card bills first, and their mortgage second.

Implications: First, while the automotive story suggests that one cause of the falling delinquency rate is greater scrutiny on the part of companies who are writing loans, perhaps consumer efforts to pare-down debt are also a factor in the reduction of tardy car loans. As recently as 2007, 45% of all car loans came with a payback term of six years or more. More troubling, the average car owner owed $4,221 more on their vehicle than it was worth at the time it was sold. [Source: The Los Angeles Times and Edmunds, 12.30.07.] It’s not surprising that consumers would be recalibrating their use of credit.

Second, many protections are built-in to the typical mortgage, which make it comparatively difficult for a lender to take action against a borrower. Less so for a credit card relationship; penalties (ranging from late fees to higher interest rates and impact on credit scores) can be swift and severe. It only makes sense that bills with consequences that hurt first and worst would be paid ahead of those with friendlier terms; terms that might be interpretted by some folks as a built-in bonus grace period... during times of financial distress.

Mike Anderson

Gift cards losing ground

More evidence about the declining popularity of gift cards appeared in a Media Post issue this week (see “Gift cards are the new fruitcake,” 11-30-09). The Tower Group research, cited in the article, suggests that one of the reasons the cards are not as popular with shoppers this year… is that they’re not as popular with the ultimate recipients.

Implications: There could be several explanations behind the decline of gift cards, there are two issues that I think play a significant role.

#1: People want to give with a splash. In an economy like this, I can shop around and find someone a nice cashmere sweater that looks like it’s worth $150 or more… for $50. If I spend that same $50 on a gift card, it looks like it's worth about $50. Which gift is more impressive to receive (and therefore, more fun to give)? You got it. The sweater--or any other hot deal--makes a bigger splash for the buck.

#2: Consumers still have trust issues. I wrote about this back in April (see “Things are not always as they seem,” 4-28-09). What is a $50 gift card worth, if it can be redeemed only at Bombay Trading Company? Or Sharper Image? Or Linens n Things? According to the Media Post story, more than $100 million in consumer-held value was lost when cards went un-redeemed because of business closures in 2008. A few more laws have been passed with the intent of greater consumer protection, but many won't go into effect until August, 2010.

If you’re trying to sell gift cards—or any other version of a promise to deliver product or render service at a later time—the first think you have to sell is trust. Why should I believe you’ll be around? Tell me about your history, your strength, your dedicated staff, your expertise, your competence.

The second thing you have to sell… is splash. What special “extra” is the holder of your store card entitled to? What are the perks I get for buying-in?

Not so long ago, “money was no object” and consumers would seemingly buy things for no reason. Now, every product and every service needs a reason (or specific value proposition). Gift cards included.

Mike Anderson

Where credit is due

More than two years ago now, I began citing a story in the Los Angeles Times about how strange things had become with regard to financing a car or truck. In the story (12/2007), a couple had traded-in their 2001 Suburban toward the purchase of a new F-350 pickup truck. The irony of the story is that they still owed roughly $9,500 against the suburban, and paid nothing down in the transaction. In other words, they drove away from the dealership owing more than $44,000 on their new pickup truck, the sum of debt between the two vehicles.

Extreme? Perhaps. But in 2008, the average car loan was 60 months. And 45% of all car loans were for terms of six years or longer.

But that trend could be shifting. From the first quarter of 2008 to the 2009 first quarter, the number of new auto loans plunged 40.5 percent, according to an Associated Press story that appeared in today’s Minneapolis Star Tribune. The story went on to say that the average auto payment fell nearly 9 percent, to $361 from $395 a year ago.

The bills are coming due, and more consumers seem to be having difficulty making all the payments. The Star Tribune story indicates an increase in debt defaults on a variety of fronts. In the first quarter, 0.83% of car loans were at least sixty days late (up from 0.65% a year earlier). 5.22% of mortgage holders were two months late, and the delinquency rate for bank-issued credit cards rose 11 percent from last year, to 1.32 percent for January through March.

Implications: The de-leveraging of the consumer is not entirely the will of that consumer. There comes a time when the consumer simply cannot find anyone to roll-up ever higher levels of debt into a new purchase. The dealership and the consumer have both begun to realize that they’re not just financing a car; that both the consumer and the dealership might be mortgaging their futures. When so many consumers so up-side-down in debt, their ability to buy a car in the years ahead is impaired, just as dealership and/or lender has diminished their ability to sell to that debt-laden group.

Are you prepared for a return to the day when ultra-qualified buyers were treated like royalty? Circumstances may be in place for the return to a marketing scheme that places premium attention on well-qualified buyers. Special incentives, customer rewards, value-added services?

In a world where customers with outstanding credit ratings might be harder to find… accept that they might also be harder to keep, due to the more competitive selling atmosphere that now obviously exists. Just as the forces of Supply & Demand can influence the value of the product or service you sell, it can dictate the value of qualified buyers. The shorter the supply of qualified customers, the more valuable each one becomes.

Mike Anderson

I'll "pencil you in"

As the economy continues to suffer spasms, it seems everything is negotiable; even things that have already been negotiated. Vendors are not surprised anymore when a long-stable client calls to adjust or even cancel a contract. Mortgage companies are no longer shocked when a homeowner simply stops making payments. And many workers have either experienced--or seem to anticipate--some kind of an adjustment to the terms of their employment. (There was a great story in the New York Times a couple of weeks ago, talking about the extent to which employment contracts have become “eminently rewritable”).

Implications: In January, Hyundai launched the Assurance Program, which essentially encouraged people to buy their new car, even if they were worried about the future of their job. “If you lose your income in the next year, we’ll take it back.” The company was up double-digits that month, even as other car companies were down double-digits (except Subaru, which was essentially flat).

A second iteration of the plan, Assurance Plus, holds that the company will make a few of your payments if you lose your job (it’s hard to look for a new job if you don’t have a car to get to your interview). As often happens in the automotive category, it seems like most other car companies have now piled-on to this concept. Everyone seem to have some kind of a “confidence” plan.

It occurs to me that another name for "confidence plan" is, "escape clause." We're giving consumers a way out of their commitment. We're offering a contract with a caveat.

Automotive is not the only place where contracts are not as solid as they were once thought. Consider the mortgage meltdown that had thousands of people stepping away from their bank. Or, people and companies who have gone through bankruptcy (or taken drastic measures to avoid it), with employment contracts or vendor commitments as casualties. We are surrounded by contracts that are frequently erased or ignored.

And now, in a way, consumers are being offered contracts which are equally "re-negotiable."

What does it mean when consumers are learning to “pencil you in?” It means earning the next sale might not be enough. You may have to re-earn the sale you’ve already made. That’s certainly no less true for the B2B vendor… than it is for the typical car company. Whatever business you're in, fundamental customer care--and knowing you're exceeding expectations and delivering meaningful value--are more important than ever.

Abandonment Issues

As an example that there are still exceptions to the rule of recent market trends, my wife and I have successfully sold our home… by choice. While certainly lower than what we could have sold it for a few years ago, we got a price we could be happy with, and the closing date is scheduled for late May.

So we’ve been house shopping, hoping to benefit from current market conditions; many of the homes we’ve considered have gone through foreclosure. Everyone knows that process is terribly hard on a family… but we’ve also seen evidence of how hard foreclosure can be on a house.

One of the properties we looked at could conceivably be a $400,000 property near the Mississippi River. But it was originally listed at just $199,000… as the main water supply to the house had been vandalized and the basement flooded. The central air, water heater, air handling system and even the kitchen cupboards had been ripped out (and probably sold). With no bolts holding the restroom fixtures to the floor, we wondered whether this home had been the victim of a new urban legend: That former occupants dumped concrete down the sewer pipes on their way out, as an act of vengeance on their mortgage holder or the next owner. Recently, we noted that the house had fallen another $20,000 in price.

But houses are not the only properties suffering from abandonment issues. With increasing frequency, automobiles are being torched by owners who are upside down in debt. (See the CBS News video below. Commercial pre-roll required.)

Watch CBS Videos Online
And as if to dramatize that the problem has gone beyond coast to coast, a story in today’s New York Times indicates that some folks have “abandoned ship,” dumping a boat they can no longer afford… leaving watercraft to litter the nation’s coastlines.

Implications: Professionally speaking, my first thoughts on this issue have to do with the how we will define “qualified buyer” in the future. I have to believe that companies who sell big-ticket items—of any kind—will be forced to change the way they decide whom to lend to. This new age of default has changed the game. Now, having a buyer or borrower who cannot pay for an item is the least of your worries. A company who sells or finances a major purchase must now worry about whether the customer will actually destroy the items sold... which often represents self-securing collateral for the transaction.

To continue the professional perspective, I’d watch for an explosion of recovery-based small businesses: Developers who move from building houses… to re-building them. Salvage specialists that can make abandoned watercraft sea-worthy once more. Will credit counseling firms go beyond payment renegotiation and financial coaching… to warning clients of the risk of criminal destruction of property?

The challenges and opportunities presented by this default-and-destroy mentality will not fall exclusively to private enterprise. Non-profits and public service organizations will also inevitably be involved. I’ll offer some personal thoughts with the goal of explaining what I mean. What is the environmental impact of coastlines and waterways littered with boats and yachts that have been strips of their sale-able parts? When so many charities have embraced the “donate your car” approach to raising revenue, isn’t it a tragedy to see so many vehicles going up in smoke? And wouldn’t it be great if a share of these abandoned homes could be leveraged to the advantage of people and families who don’t have one?

Mike Anderson