The rich are not selling their homes because they cannot find buyers. So like the rest of the 11 million US mortgage holders in the US with underwater mortgages, they are walking away from their mortgages.
New data from Corelogic, a real estate investment firm, shows that the rich now default on home loans more than the middle class, at least as a percentage of homeowners in each economic class.
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to The New York Times. “About one in 12 mortgages below the million-dollar mark is delinquent.”There are many reasons for the rich to leave their homes, and none has a good remedy.
The well-to-do are losing jobs at a rate slower than most lower and middle class people, but they are losing them nonetheless. People with extremely high incomes are likely to be older and cannot find new jobs quickly. They may find there are nearly no positions for people who need to make more than $200,000 a year. Many of those spots go to people who make less or to contractors.
The wealthy also own more second homes. They are a pleasant luxury when economic times are good. Two houses may be extravagant as the economy remains tight. A person who has two houses can simply choose to live in one and let the other go.
Another reason that the wealthy may be willing to give the banks the keys to their homes is that the stigma of surrendering a residence has largely gone away as more and more people default on their mortgages.
Banks already face the losses tied to defaults by middle class homeowners and people with subprime mortgages. A default on a $2 million home is worth 20 times the losses than a default on a $100,000 homes, if the owners have similar equity-to-loan value ratios.
F. Scott Fitzgerald said the rich are different from you and me. It appears that the difference it not terribly great.
Douglas A. McIntyre
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