[FoRK] NYT: BIggest Defaulters on Mortgages Are the Rich; The Power of Half
Stephen D. Williams
sdw at lig.net
Sat Jul 10 14:55:26 PDT 2010
Los Altos is the "other half" of Mountain View. They share school districts.
> 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
> and Freddie Mac
> 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
> 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.
> Giving Up on a Big Loan
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> 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
> The rich and successful often come naturally to this sort of attitude,
> said Brent T. White, a law professor at the University of Arizona
> 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.”
> ‘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.”
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