Ruthless Rich Dumping Mortgages
The NYT, which has been banging the drum on the Strategic Mortgage Default story for a while now, reports that the rich are at the forefront of the phenomenon.
Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population. More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.
Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment. “The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.
More probable: The rich are more strategic. Just as importantly, they’re more able to accept the consequences of acting strategically.
First, the wealthy are more likely to think of their home — and certainly, their second and third home — as an investment whereas those further down the economic ladder simply think of it as a place to live.
Second, the housing bubble almost certainly hit higher end homes — and second homes — the hardest. If you’re $100,000 under water on your house, it probably makes good sense to ride out the storm rather than accept the pain of default. But if you’re a million dollars underwater, the incentives for abandoning ship are much greater.
Third, the wealthy are more able to walk away from a mortgage and still have a place to live. If you’ve already got two houses, though, you can just move into the other one! For that matter, if you’re wealthy, you’re much more likely to be able to get a second loan on a comparable but cheaper house — levering the housing market’s crash — and then dump the first one. Those options tend not to be available to people making average incomes.