If you’ve got a mortgage of $1 million or above, you’re significantly more likely to be delinquent with payments compared to homeowners under the $1 million mortgage mark. Why are the wealthy falling behind or walking away from their mortgages? “The rich are different: they are more ruthless,” says one economist who helped compiled the data.
So reports the NY Times:
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.
Why are the rich pulling out? From the looks of things, it’s not because they don’t have the money. Instead, it appears as if the rich are more ruthless — quicker than the masses when it comes to pulling the trigger and dumping a bad investment. The wealthy also seem to be less concerned with the moral issues involved in walking away from financial agreements—that is, if you believe ethics play into this sort of thing at all. (It is arguably that investing is an entirely amoral proposition, no matter if we’re talking about a home, gold, or a piece of artwork.) Some NY Times analysis:
The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes.
It’s safe to assume that the rich know a lot about money; if not, how did they get rich in the first place? And it’s pretty obvious that, in a housing market that lost, say, 50% of its value, a homeowner who bought a $2 million property has a lot more at stake than the homeowner who paid $200,000. Even though the values of both of these homes have been cut in half, the buyer who agreed to the $2 million house is on the hook for a lot more dough. Keeping up with the mortgage would mean sinking significantly more money into an investment, and significantly more time required to recoup that investment. Defaulting would save the rich person a lot more than it would the poorer homeowner. No wonder the rich are more likely to walk away.
There’s also the fact that, chances are, rich folks own lots of things—multiple homes, cars, etc.—and they might not be quite as attached to their homes as the folks who scrimped and saved and broke their backs trying to get their piece of the American Dream. The smartest, most business-like approach to an investment gone bad—any investment, home-with-white-picket-fence included—is to make it go away. Morality? Sentimentality? They’re for suckers.