I’ve mentioned before how the decision to walk away from a mortgage that costs more than your house is worth (‘strategic default‘) should be based on how that decision affects you financially (and, of course, if you want to stay in the house anyway). In an environment where loans were approved such that there could be a strong incentive to walk away, there’s no ethical issue–caveat mutuor. So I find this NY Times report very interesting:
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.
I don’t think they’re more ruthless, just less intimidated by other wealthy people, and, like wealthy people everyone, less bound by convention–the rich don’t have to be bourgeois. And make no mistake about it, screwing over your future out of some misplaced belief that those to whom you owe the money will behave benevolently is the sucker’s play:
The rich and successful come naturally to this attitude because they understand how contracts work and don’t get hung up on the Calvinistic notion that they should destroy themselves rather than return a piece of property to a bank.
Banks don’t “feel” and they have no morals. They hold all the power to foreclose on you when you can’t pay and exercise it without emotion. If it is in their interest to renegotiate they will try to do it. If it isn’t, they won’t. Corporations are required by law to act this way on behalf of their shareholders. As long as that is true, then the all the parties to these contracts have no choice but to do the same thing. It’s just a financial transaction not a religious rite. This is a rigged game for average Americans and they should wise up.
While I realize regulation has become a four-letter word, regulation does force the regulated to act in certain ways that they would otherwise not. To the extent we want an ethical economic system, it needs to be structured and enforced in order to remove incentives and advantages for unethical (or ‘athetical’) behavior.
But I realize that would be like totally Hitler.