When you think about the people who are walking away from underwater and delinquent mortgages across the nation do you picture people like yourself who are struggling to make ends meet? Or do you think about people who are strategically defaulting on their mortgages because of the depressed value of their home?
While it is a fact that many of the people who have defaulted on their loan or walked away from their mortgage are home owners who would rather be paying their monthly payments so that they could honor their contracts, there is also a contingent of home owners who can afford to pay their mortgage but choose to walk away from their obligation.
One of the most disproportional groups that is walking away from their underwater mortgages is wealthy home owners. According to the NY Times, the percent of home owners who are delinquent on their mortgage is almost twice as high for those with mortgages over $1 million than those with mortgages under a million dollars.
It is unclear how many of these million dollar-and bigger-homes are primary or secondary residences. While it can be a tough choice to walk away from an underwater mortgage for your primary residence, defaulting on a loan for a secondary or vacation home is far less difficult and might partly explain why this subsection of home owners is defaulting at such high rates.
Another reason why owners of $1 million and higher mortgages might be defaulting at such higher rates is that wealthy home owners are likely to look at the problem like a business decision. In business it makes sense to cut your losses when confronted with a situation like the depressed value of an asset.
While it might be preferable to sell your expensive home before walking away from your underwater mortgage, that can be difficult for expensive properties. For many home owners, it has been difficult to sell homes that were worth millions of dollars before the economic crash, even at reduced prices. With that in mind, it is a bit more understandable why wealthier home owners might feel that they are being left with few options and choose to default.
Only time will tell how well these strategic defaults work out for these home owners. With the increased occurrence of banks holding home owners responsible after they have defaulted on loans, it is entirely possible that these strategic defaults will end up costing these home owners more than they bargained for.