Not surprisingly, the bursting of the housing bubble has moved up to the final rung on the ladder.
Far from the days of the subprime debacle, now even the “good” people are getting squeezed.
The difference is the rich are smart enough to walk away from it all. In fact, homeowners with loans of more than $1 million default at a much higher rate than “the little people” do.
From CBS News entitled: Even More Millionaires Defaulting on Mortgage
“For Darren Thomas that ocean view was quickly losing its value. He says, “I bought it for [$1.385 million]. It is worth less than [$800,000], maybe less.”
Thomas bought his townhome in 2006 but after seeing its value drop steadily he stopped paying.
“I haven’t made a payment in two years,” he says. “It was business decision. It was an easy decision. I have a property worth six or 700,000 less than when I bought it. I was making payments of 10,000 a month.”
Thomas has gone into strategic default. He could make payments but is refusing to put more money into a home that is worth less than his mortgage. Among luxury homeowners he is not alone.
One in seven homeowners with loans over $1 million are seriously delinquent compared to one in 12 with mortgages below $1 million.
The more you owe, it seems, the better off you may be. Darren Thomas continues to live in his home because banks are often slower to foreclose on million-dollar homes.
For those who have stopped paying their million-dollar mortgages it’s just an investment that didn’t work out.
“As negative equity took place and drove the value down it became an investment not worth holding onto,” says Corelogic’s Mark Flemming. “Not much different than a regular stock you would sell.”
“People like myself, business people, are going it is silly to throw good money after bad,” says Thomas “The loss is not mine. The loss is the banks.”
When it comes to real estate, the rich are different. They can be just as ruthless as the bankers.”
I guess Nick Carraway was wrong after all.
In some ways the rich really are just like the rest of us….suckers for a good bubble.
The difference is they understand the money/business part of the game better than most.
For them its just a business decision.
By the way, according to CoreLogic, home price have fallen for the fifth straight month. Overall, house prices delined 1.8% for the month of December.
Related Articles:
Case-Shiller Index Shows Renewed Home Price Declines
Case-Shiller Index Screams Housing Double Dip
Meredith Whitney Predicts a Housing Double-Dip
Zandi: Expect 8% Home Price Declines
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