Wealthy U.S. homeowners are now the most likely to default on their mortgages, the New York Times reports. This upends the long-held assumption that the widespread defaults that contributed to the 2007 mortgage crisis were owned by low-income or minority homeowners. Here's what writers and experts are concluding from this surprising story.
- Rich 'Dumping' Underwater Mortgages The New York Times' David Streitfeld writes, "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."
- Defaults Are Probably Strategic Business Decisions The Big Picture's Barry Ritholtz suggests, "My best guess is, this is likely due to a more business-like, less emotional approach to home ownership by the top 10% of earners. Amongst the rich, any single home is probably not their biggest single asset — the way it is for most Americans. Hence, any buy or sell decision is more likely to be more rational and less sentimental."
- They Have the Luxury to Default Outside the Beltway's James Joyner explains, "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."
- Rich Defaults in California Enjoy Special Protections Reuters's Felix Salmon writes of the wealthy defaulters, "they’re disproportionately likely to live in California, or other non-recourse states where you can default on your seven-figure mortgage without any realistic worry that the bank will come after your other assets." He sighs, "I think it’s pretty clear which direction we’re headed in, and moralistic exhortations aren’t going to turn the tide."
- The Cultural Difference EconoBlogger Yves Smith writes, "the affluent are far less burdened by consideration of morality in their financial decisions, including their mortgages." Additionally, "the rich both borrowed more than in past cycles and took on more risk to boot." Their defaulting loans and mortgages are for more money and thus are causing more damage to the financial system as a whole.
- Media Got It All Wrong Liberal blogger Duncan "Atrios" Black scoffs, "It's a bit hard to comprehend that this housing/foreclosure crisis stuff has been going on for ... years already. As is so often the case, the maintstream media got it completely wrong initially, painting it as a 'subprime' crisis due to bad behavior by unworthy brown people." John Cole adds, "I can’t wait to hear how Republicans try to pin this ... on black people and Fannie Mae and Barney Frank."