Foreclosure Friday!
Matt’s Take on the News
7/29/2010
Foreclosure Friday – The Top 1% Stick It To The Banks
John Nyardi from the Wall Street Journal reports on a topic that I have been addressing for awhile. As time goes on, a higher percentage of people with $1M and up mortgages are defaulting as compared to their median priced brethren. Mr. Nyaradi points out that, “One in seven homeowners with (a) loan over $1M are in default. That compares to 1 in 12 loans below the $1M mark. This is putting a huge amount of stress on the financial system as 23% of all luxury homes bought as investments are now 90 days or more overdue compared to just 9% of the smaller homes.”
There could be several reasons for this trend. Some folks that are defaulting on $1M+ mortgages, are doing so on second and third homes. If they lose these homes, they still have other(s) to move to and live in. Typically, if an individual with a median price home defaults, they are defaulting on primaries and have no other place to do. So they do there best to hang in there. The other side of the coin is that those that have $1M+ mortgages, have the means to continue throwing good money after bad so they do so until it runs out. Guess what? The money is running out!
New’s Article
Foreclosure Friday – The Top 1% Stick It To The Banks
John Nyaradi Wall Street Sector Selector
“The rich are 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.” – Brent White
One in seven homeowners with loan over $1M are in default. That compares to 1 in 12 loans below the $1M mark. This is putting a huge amount of stress on the financial system as 23% of all luxury homes bought as investments are now 90 days or more overdue compared to just 9% of the smaller homes. Don’t think of this as a 1:1 relationship either as the cut-off of $1M means that a single $10M unpaid mortgage above the line is worth 100 $100,000 loans (the national average) that are unpaid below the line so the distortion from a cash basis is close to a level of 100:1, which just so happens to be the difference in the income level between the top 1% and the bottom 99% as well!
Back in February, I detailed 3 ways that can save you $100,000 in payments on a $200,000 mortgage that could be accomplished without a default – so don’t blame PSW Members for this annoying trend – we are part of the solution! Unfortunately, the same can’t be said for our fellow investors: 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. 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.
“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, CoreLogic’s Senior Analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.” Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006. “I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”
