Mortgage Defaults More Common Among the Wealthy

America's wealthy are defaulting in greater rates on their homes It's not just the laid-off industrial worker or the owner of the rundown shanty that's tumbling toward foreclosure or struggling to stay current on their home mortgage. Contrary to common stereotypes, the current housing crisis is plaguing the so-called rich harder than the common man.

One in seven homes with loans of $1 million or more are "seriously delinquent," which is defined as missing three payments in a row; that's according to data compiled by the real estate analytics company CoreLogic for The New York Times.

In fact, owners of high-rolling loans have ceased paying their mortgages at a rate higher than the rest of the population. These borrowers -- in upper-crust havens like Los Altos and Orinda, Calif. to Wilmette, Ill.-- are faring worse than those with loans under a million dollars, where about one in 12 mortgages are underwater.

So, why are the rich the biggest defaulters?
An explanation could lie in the upturn in strategic defaults; that's when a homeowner sees an economic advantage in being delinquent on a loan rather than paying it.

Sam Khater, a senior economist with CoreLogic, suggests the subset of wealthy homeowners are more likely to intentionally not pay a mortgage. "Those with high net worth have other resources to lean on if they get in trouble," Khater told the Times. "If they're going delinquent faster than anyone else, that tells me they are doing so willingly."

But across all income brackets, strategic defaults are a festering problem amid the housing debacle. According to a report from the data firm Experian, released at the end of June, nearly one in five underwater mortgages were caused by a homeowner choosing to stop making payments.

But with evidence pointing toward the rich as the biggest offenders, some have attempted to explain the psychology of this decision-making process.

A study by Brent White, an associate professor of law at the University of Arizona, says that it is a rational response to walk
away from an underwater mortgage, in which a borrower owes more than the current value. Homeowners are driven by emotions, such as anxiety, anger and hopelessness.

"[The wealthy] may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest," White said.

But while it may be true, that's a tough explanation for many Americans to swallow.

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