If you have some stupid relative or co-worker who listens to Fox News and thinks black people were responsible for the housing crisis, show them this:
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.
Because banks are so reluctant to renegotiate the terms of their loans, and because the housing market is so oversaturated with available homes, there is very little incentive to hold onto underwater properties. It makes more sense financially to simply stop making the mortgage payments and use that money for investments that will actually give a positive return. It’s a decision made much easier for those who have enough money to retain their primary residence. It’s not that the rich are more ruthless. It’s that they have the luxury of defaulting without having to move into an apartment or their car. And they have the financial chops or advisers to know what makes sense for them.
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. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.
The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.
It’s easy to ask people to think of their civic duty to their communities, but people are defaulting because it makes economic sense for them to default. The government can change the incentives, but that involves forcing the banks to do something that they should be willing to do on their own if it makes good business sense. There are new loan modification programs out there, but they’re obviously not working for the homeowner.
