[FoRK] NYT: BIggest Defaulters on Mortgages Are the Rich; The Power of Half

[Stephen D. Williams]

Los Altos is the "other half" of Mountain View. They share school districts.


http://www.nytimes.com/2010/07/09/business/economy/09rich.html?_r=1
> LOS ALTOS, Calif. — No need for tears, but the well-off are losing 
> their master suites and saying goodbye to their wine cellars. 
> The housing bust that began among the working class in remote 
> subdivisions and quickly progressed to the suburban middle class is 
> striking the upper class in privileged enclaves like this one in 
> Silicon Valley. 
>
> 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.
>
...
>
> Lenders are fearful that many of the 11 million or so homeowners who 
> owe more than their house is worth will walk away from them, 
> especially if the real estate market begins to weaken again. The 
> so-called strategic defaults have become a matter of intense debate in 
> recent months.
>
> Fannie Mae 
> <http://topics.nytimes.com/top/news/business/companies/fannie_mae/index.html?inline=nyt-org> 
> and Freddie Mac 
> <http://topics.nytimes.com/top/news/business/companies/freddie_mac/index.html?inline=nyt-org>, 
> the two quasi-governmental mortgage finance companies that own most of 
> the mortgages in America with a value of less than $500,000, are 
> alternately pleading with distressed homeowners not to be bad citizens 
> and brandishing a stick at them.
>
> In a recent column 
> <http://www.freddiemac.com/news/featured_perspectives/20100503_bisenius.html> 
> on Freddie Mac’s Web site, the company’s executive vice president, Don 
> Bisenius, acknowledged that walking away “might well be a good 
> decision for certain borrowers” but argues that those who do it are 
> trashing their communities.
>
> 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.
>
>
>             Multimedia
>
> Graphic 
> <javascript:pop_me_up2('http://www.nytimes.com/imagepages/2010/07/09/business/09rich_graphic.html?ref=economy','776_511','width=776,height=511,location=no,scrollbars=yes,toolbars=no,resizable=yes')>
>
>
>             Giving Up on a Big Loan
>             <javascript:pop_me_up2('http://www.nytimes.com/imagepages/2010/07/09/business/09rich_graphic.html?ref=economy','776_511','width=776,height=511,location=no,scrollbars=yes,toolbars=no,resizable=yes')>
>
>
>       Readers' Comments
>
>     Readers shared their thoughts on this article.
>
>     * Read All Comments (533) »
>       <http://community.nytimes.com/comments/www.nytimes.com/2010/07/09/business/economy/09rich.html>
>
> 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.
>
> With second homes, the delinquency rate for both types of owners was 
> rising in concert until the stock market crashed in September 2008. 
> That sent the percentage of troubled million-dollar loans spiraling up 
> much faster than the smaller loans.
>
> “Those with high net worth have other resources to lean on if they get 
> in trouble,” said Mr. Khater, the analyst. “If they’re going 
> delinquent faster than anyone else, that tells me they are doing so 
> willingly.”
>

...
>
> The rich and successful often come naturally to this sort of attitude, 
> said Brent T. White, a law professor at the University of Arizona 
> <http://topics.nytimes.com/top/reference/timestopics/organizations/u/university_of_arizona/index.html?inline=nyt-org> 
> who has studied strategic defaults.
>
> “They 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,” Mr. White said.
>

> But this is still Silicon Valley, where failure can always be 
> considered a prelude to success.
>
> In the middle of a workday, one troubled homeowner here leaned over 
> his laptop at the kitchen table, trying to maneuver his way out from 
> under his debt and figure out the next big thing.
>
> His five-bedroom house, drained of hundreds of thousands of dollars of 
> equity over the last 13 years, is scheduled for auction July 20. Nine 
> months ago, after his latest business (he has had several) failed in 
> what he called “the global meltdown,” the man, a technology 
> entrepreneur, said he quit making his $9,000 monthly payments.
>
> “I’m going to be downsizing,” he said.
>
> The man spoke on the condition of anonymity because, he said, he did 
> not want his current problems to interfere with his coming 
> reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”
>

http://www.nytimes.com/2010/07/10/your-money/10money.html?scp=1&sq=power%20of%20half&st=cse
> ‘Daddy, Are We Rich?’ and Other Tough Questions
> By RON LIEBER
> Published: July 9, 2010
>
> There is nothing like an inquisitive child to make you realize just 
> how complicated the topic of money is. That’s what I ended up thinking 
> after my 4-year-old daughter a few weeks ago stomped her feet, turned 
> red and demanded to know why we did not own a summer house.
...
>
> Doug Garr, who lives in Manhattan, said that once his son was old 
> enough to understand that the family had two homes, his son suggested 
> giving one to a homeless person. “His logic was sound,” Mr. Garr 
> recalled. “Why should we live in two homes when so many live in none? 
> I had no answer for that one.”
>
> Or your child may wonder why you have twice the home you need. Kevin 
> Salwen and his wife were so taken by their daughter’s conviction in 
> this particular matter that their family of four decided to sell their 
> 6,500-square-foot home. They bought a new one less than half the size 
> and are giving away about $850,000, more than the price difference 
> between the homes.
>
> And what if your child gets an idea like that? If you’re not ready to 
> uproot, encourage them to think of other things they can give. “We 
> never encourage anybody to sell their house,” said Mr. Salwen, who 
> wrote a book with his daughter called “The Power of Half 
> <http://www.thepowerofhalf.com/home>” about the family’s experience. 
> “That was just the thing that we had more than enough of. For others 
> it may be time, or lattes or iTunes downloads or clothes in their 
> closet. But everyone has more than enough of something.”
>


sdw