Mortgage Defaults More Common Among the Wealthy
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.
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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