For all the attention being paid to the so-called “strategic default” option for troubled borrowers, the one group actively choosing to stop payments most often are the healthy, wealthy American rich.
Whether they’re asking to borrow your Grey Poupon to save a buck or walking away from a multimillion dollar commitment they could actually pay, the wealthiest American’ tend to think about money differently than the rest of the population, at least according to The New York Times article “Biggest Defaulters on Mortgages Are the Rich.”
“The rich are different: they are more ruthless,” says Sam Khater, CoreLogic’s senior economist in the article. He’s referring to a trend revealed by CoreLogic’s data that shows higher levels of delinquency for houses that cost more than$1 million; nearly 1 in 7 are significantly delinquent compared to just 1 in 12 for houses that cost less $1 million.
One argument for this discrepency is there is less of a market for these homes and the wealthy face job losses and tumbling home equity just like the rest of America. An accompanying graph indicates the lowest levels of non-performance are found among primary residences (albeit these are still at higher levels than their small-mortgage counterparts). Non-performance among secondary homes rose sharply among the wealthy following the hits to the stock market.
However, many of these homes are one of multiple residences, which represent more investment than homestead in the mind of the owner. Among investors, homes worth more than $1 million were delinquent at more than twice the rate of their smaller scale counterparts. “I just decided to let it go, give it back to the bank,” rapper Chamellionaire was quoted regarding the multimillion-dollar property he walked away from. “I just didn’t feel like it was a good investment.”
Would you walk away from homes likes these voluntarily? (Image Source: CNBC.com)