Wealthy homeowners walking away from mortgages - Macleans.ca

Wealthy homeowners walking away from mortgages

U.S. study finds million-dollar mortgages more prone to “strategic defaults”


According to research published in the New York Times, the wealthy are more likely than anyone else to default on their mortgages in the U.S. One in seven people with loans worth more than a million dollars is delinquent, nearly double the one-in-12 rate for those with a mortgage under a million dollars. The report suggests the rich are simply walking away from their debts as the housing market collapses around them rather than keep paying into what was turned into a failed investment. “Those with high net worth have other resources to lean on if they get in trouble,” says study author Sam Khater. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

New York Times

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Wealthy homeowners walking away from mortgages

  1. I just finished reading M Lewis' The Big Short – awesome book – and he talks about an example of bank giving $700,000 mortgage to illegal alien strawberry picker from Mexico with no documents. So people walking away from million dollar homes are not necessarily rich, they could also be itinerant fruit pickers.

    • Which bank? Where? Do they have a 1-800 number? Sounds like I'm overqualified!

    • I had the same thought, jwl. Given how banks and homeowners have behaved lately in the US, it is not necessarily a given that "rich" people are walking away from stunning debt obligations.

      Either there is too much of a reward (you should hear some of the American radio ads encouraging people to walk away from tens of thousands of dollars of credit card debt) or not enough of a penalty (yeah, they go together) for incurring insane levels of personal debt and then failing to honour that debt.

      • Now, now, Made, let's be reasonable. We're not about to adopt France's
        old ways where a single bounced check was enough to land you in jail!

        The banks and other credit pushers make enough easy money on our
        backs, day in, day out. It's only fair then that they bare the risk of people
        defaulting when things go sour…

        • Welcome back to the Earth's surface. The oxygen must be very refreshing for you. It pains me to inform you that it is not the banks and credit pushers who are bearing the brunt of these credit agreements that are falling apart. It is the taxpayers of today and tomorrow; those economically productive people who, by and large, repay their own debts, will be paying for the irresponsible decisions of others. Take a moment to acclimatize yourself to the daylight, and read around a bit whenever you're ready.

          • Don't forget small businesses. The number of people that max out even the smallest credit lines will kill businesses in a hurry if they can't collect. Buying items and assuming that the owners can cover their backs if they can't pay for the services or materials.
            Ugly cycle if the attitude spreads. No one gets paid and no one can work for free.

          • That's a whole other issue which I don't necessarily disagree
            with. A lot of us are certainly asking, "Where's MY bailout?"

            Made, take a chill pill. You're opinionated, we can all appreciate
            that. Try avoiding being brash and demeaning once in a while…

          • Sorry. When you stated that it's fair that banks pay the price of their dumb lending decisions, it seemed obvious to me that you had been away awhile. Since that is not at all who actually paid the price of the banks' dumb lending decisions.

      • I don't know the solution except to be more careful when handing out mortgages, myl.

        I believe one of the main reasons why America generates so much wealth is their relatively lax bankruptcy laws. Most democracies have much more draconian laws than US and nowhere else are people allowed to walk away from debt like they can in US. I think it's great that wealth creation is encouraged but better balance is needed, that's for sure.

        Lewis book was interesting because it looked at incentives and how they played role in this fiasco/disaster. The whole financial system is set up for government, banks and Wall St working together to give mortgages to people who are not remotely credit worthy. Americans need to revamp their financial system and change incentives to encourage thriftiness and stop giving huge, unwieldly mortgages to illegal aliens, strippers, baby sitters and others who have no chance of paying off their debt.

        Minotaure's comment is classic, I wonder if they have a bank account and does s/he know what banks do with people's money.

        • Deductibility of mortgage interest payments off of your income tax is another mechanism to encourage a higher level of mortgage interest (i.e. high principal and very low down payment) and insanely long repayment terms.

        • "stop giving huge, unwieldly mortgages to illegal aliens, strippers, baby sitters and others who have no chance of paying off their debt."
          And what about the many responsible homeowners who were actively encouraged to re-mortgage their homes by deceptive bankers who were motivated by their own self-interest. These people believed the lies they were told by bankers & are now faced with or have already lost the homes they worked their whole lives for. The percentage of "illegal aliesn, strippers & baby-sitters" who contributed to this problem is miniscule compared to the over-riding greed of banks/bankers, who didn't care about the long-term only their own short-term profits & didn't care who might get hurt in the process.

          • And what was motivating the many responsible homeowners who re-mortgaged their homes? It seems to me you think that self-interest is a crime for only certain kinds of individuals.

  2. there needs to be more accountability. If you borrowed you should pay back if you can. If banks were allowed to go after other assets to get repaid fewer would default.

    • Walking away is the best thing anybody can do if you are way underwater. The people with million dollar plus homes probably get financial advice advising them to do so. It's a simple business decision at that point.

      If banks were allowed to go after other assets the average joe would truly be enslaved to debt.

    • Banks don't have enough power is a very interesting idea. I'll give it some thought, as soon as I'm done considering their share of society's current "accountability".