An enterprising journalist or diarist might want to look into the political contributions
of these high-end strategic defaulters, say in the 2000-2008 timeframe.

This is why Calvinism (for the nominally Christian) and Randroidism (for the atheists) are so popular among the moneyed elite: Those are their justifications for not living by the same rules they would compel us to obey. They’re the Elect and we’re the “lesser people”, as wealthy political family scion Alan Simpson would say.

O/T. If this poll is accurate, trying to run a progressive is going to be more of an uphill battle than ever.

Poll: 55% Of Likely Voters Think Obama’s A Socialist

LINK.

You borrowed 1,300,000 for your house.

Your house has a current market value of 1,000,000;

you expect it to drop 20% over the next 2 to 3 years.

You still are on the hook for the original 1,300,000 and interest… unless you default!

Nowhere in the contract you signed does it say you cannot default!

All it says is that if you default the property is ceded to the lender.

“Shovel ready” bullshit won’t solve this problem.

Twas ever thus:

It’s the same the whole world over
It’s the poor what gets the blame
It’s the rich what gets the gravy
Ain’t it all a bleeding shame.

It’s an interesting article and should help dispel the idea that the CRA was mostly to blame. However, is it accurate to say “Most Mortgages in Default Held By the Wealthy?” I’m just guessing, but I imagine that there are a hell of a lot more mortgages for average homes than for these million dollar plus homes.

The post is accurate. Read the article DD cites:

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.

The Treasury/Fed has done about all it can to prop up the housing market on behalf of the banks. The second leg down will be breathtaking. The banks (not Goldman or Chase of course) will fold. We will have a ginormous inventory of empty houses and ever increasing homelessness.

Hilarious. I’m guessing a similar number would think Obama is a dummy poopy.

I just finished reading a great analysis of Rand and her pervasive influence in The Nation by Corey Robin

Link Here A bit long. It is as good a description of Randism as any I have read. I found the part on religion and its history in this context particularly interesting.

I guess that bipartisanship fetish worked out as great as progressives predicted.

Just imagine how awesome it would be if he actually did anything remotely socialist.

Those are rates — or percentages, not numbers. I doubt there are 7 mortgages above a million dollars for every 12 below, but I could be wrong. At this 7/12 ratio the number of defaults above and below would be equal. There would have to be more than 7 to 12 for the statement to be accurate.

Agree that all the sentences I’ve read do not clarify your Q. However, if you think about ‘most’ in $$ terms, not number terms, which would be the appropriate way to think about the influence on the economy, ‘most’ is much more likely to be accurate, since it takes 3 or 4 regular mortgages to make the same $$ amount as a million+ mortgage.

I was wondering about that also. I still wish there were more numbers in that article.

CRA is the 1977′s law that the reduced discriminatory credit practices against low-income neighborhoods, a practice known as redlining – and is therefore not anything new – and indeed it has from 1977 to mid Bush first term a good repayment record that is as solid as any other loan cohort from that income group – only liar loans turn it bad – but they got Bush re-elected (or at least close enough so that stealing Ohio won him 4 more years). In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards, resulting a in drop in new CRA loans -yet sub-prime lending continued and indeed intensified with the Bush approval of liar loans. In 2006 More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions, Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year, and Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics. The investment banks are not under CRA, nor are the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans. Only one-third of all CRA loans had interest rates high enough to be considered sub-prime. In 2008 the CRA home mortgages only account for about 20% of all home mortgage loans, so a 9% default rate on CRA loans is only a tiny part of the mortgage default problem.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players – so yes they did securitize sub-prime loans prior to the crisis, but they were not the major player.

The statistic is that the rich have a default rate nearly twice the rate for the non-rich. It is not about the proportion of the pool of non-performing loans that are the loans of the rich – the mortgages most likely to fail have seven figures.

The headline of the article needs work :-)

Jane has a fresh cross-post up: Chris Matthews Interviews Reshma Saujani

That stat says that more rich homeowners have mortgages in default than “poorer” homeowners, but it does not support the headline, which says that most mortgages in default are held by the wealthy.

David, your link doesn’t support your headline.

Your link states that the wealthy are more likely to default on a mortgage.

Your headline states that most mortgages in default are held by wealthy mortgagors.

Am I missing something, or did you misunderstand the article?

EDIT: I see other commenters beat me too it. Phoenix Woman, the author appears to be confusing percentage rates with actual occurrences. If a high percentage of a small group default, its likely fewer defaults than a lesser percentage of a larger group; get it?

The elites shame the non-elites about these matters. As the article suggests, if the less fortunate don’t pay their bills -regardless of what misfortune they encounter- they are considered shiftless, unworthy, deadbeat. Meanwhile, for the elites, it’s “just business” and shame is really not a factor. The bank bailouts etc. are changing this. The banks and their owners have no shame and people can see this. Cynthia K. had a nice post about this a while back.

This is nicely illustrated in the NYT article where the Freddie Mac website is quoted as admonishing defaulters that they are “trashing” their communities. (As if the mortgage meltdown was these defaulters’ responsibility.) Apparently not a major concern for the wealthy who have the means to look beyond threats and contracts to assess their true financial and legal position. Also, the wealthy may have many more options about where to go/live while the less wealthy have only the choice of home or no home.

The article seems to have an overly rosy view of the success of the “various modification programs.” Maybe for the wealthy …

It used to be that owning a home was a 2-way street. The homeowner got a place to live and equity and the bank earned the interest. Now it seems the only thing that counts is the bank’s profits. People need to take their power and their future back.

And then there is this!

Please put this in a diary.

Thanks for the information.

As this late stage, there’s just no excuse for housing to still be this much of a mess. This amounts to failed leadership. Nothing new but the consequences are going to get expodentially worse.

BTW, how many of these million dollar homes were owner occupied? I’m wondering how much of this amounts to speculators flipping properties as opposed to rich folks buying McMansions to live in.

Yes. This recession (depression?) is effecting everyone, even the affluent. When risky behavior is rewarded, i.e. buying more house that you can actually afford because thie price of your home does not appreciate as anticipated, more risky behavior ensues. Everyone thought that demand would never ease and prices would continue to rise…until it didn’t. Irrational exuberence. So many upper income earners bought bigger and bigger homes and second homes with very little money down.

Just to make the basis for challenging the headline clear:

Suppose a share X of all loans consists of jumbos (actually over $1MM, but bear with me please). Then all the other loans, which are nonjumbos, are 1-X. The article says that 1/7 of all the jumbos, that is, (1/7)X, are delinquent, and (1/12)(1-X) of the nonjumbos similarly.

Then for there to be more jumbos delinquent than nonjumbos, (1/7)X has to be greater than (1/12)(1-X). Solving that says that X, the share of jumbos out of all loans, has to be greater than 7/19, or about 37 percent.

dick c’s reasoning @12 is just as valid. The kind of thing I just did is often called “brute force” by econs. None too subtle, but leaves no doubt.

“Loan modifications have done absolutely zilch to help struggling borrowers.”
True, some 60% of loan modifications are back in default within a year. All this has done is waste a lot of time and money (ever see all the closing documents that have to be produced?)

“the most vulnerable borrowers, the ones pushed into loans they couldn’t afford, suffer the consequences”

The “pushed into loans” myth is just that. Most refinanced and used their home like an ATM’s so they could buy stuff, stuff and more stuff.

“if the less fortunate don’t pay their bills -regardless of what misfortune they encounter- they are considered shiftless”

“Shiftless” is a harsh word. I prefer “deadbeats.”
“Freeloaders” is also acceptable.

Even with all that into consideration, what is the definition of “wealthy”? Like if you’ve got only a $900K mortgage, are you not wealthy? For that same matter someone could be making $1M a year and default on a second home with mortgage of $500K – should that defaulted mortgage on a second home be classified as not belonging to someone wealthy because the mortgage is less than $500K?

I think it would be better to know for instance those homes that have an ASSESSED VALUE of say around $150K or less and are the PRIMARY RESIDENCE and are in default and even then I’d be careful of making this some sort of class issue. Talking about home ownership and wealth is really rather tricky, particularly when putting in such a high dividing line at $1M owed on the mortgage. I think a lot of people would say someone making $300K per year and having an $800K mortgage isn’t in the “working class.”

However, I think the reason for these statistics is provided in the article itself – Fannie and Freddie ban people for supposedly doing strategic defaults, which that would target those with mortgages of around $800K or less (for the most part, there are some that are greater than $1M and all the way up to almost $2M in some states), so if you’re dealing with $1M plus mortgages (the dividing line in the article) the ban mostly doesn’t apply to you because you wouldn’t be getting future mortgages through Fannie/Freddie. Only a fraction of the less than $1M mortgages are jumbo (non-Freddie/Fannie) mortgages, so you are dealing mortgage holders operating under different sets of rules. To validate or invalidate that is to see what the breakdown in defaults on CONFORMING VERSUS JUMBO mortgages and that might shed some more light on the root cause of defaults. This very well could be a policy based decision on whether or not people expect to get a future home with a conforming mortgage (so not wanting to be banned by Fannie/Freddie) versus a jumbo mortgage rather than there being some fundamental difference in attitude based on income.

I understand the point that the wealthy can live in cheap housing – so “wealth default at high rate” is better said as “large mortgages over $1 million – jumbos start at 417000 in many areas so Jumbo is not a good classification either- default at high rate”.

Of course there is an amazingly /s high correlation between wealth and having a mortgage over $1 million.

The wealthy do not give a damn about a Fannie/Freddie rule – and that is attitude – and that too correlates amazingly well with wealth.

And of course the non-wealthy are nuts to not copy that attitude – it is in their self interest. But then the non-wealthy vote for the GOP – so self-interest does not correlate well with what the non-wealthy do.

“The wealthy do not give a damn about a Fannie/Freddie rule – and that is attitude – and that too correlates amazingly well with wealth.

And of course the non-wealthy are nuts to not copy that attitude – it is in their self interest. But then the non-wealthy vote for the GOP – so self-interest does not correlate well with what the non-wealthy do.”

Re-read what I said. People who expect to get jumbo mortgages in the future Fannie/Freddie banning simply doesn’t apply to them, while those who expect to seek conforming loans the banhammer does apply to them. The different rules for the different types of loans means that what is in someone’s self interest differs. I don’t see how you can call people nuts for not wanting to be banned from being able to get a mortgage in the future – are you saying that you don’t want people to be able to own homes?

Banned from Fannie/Freddie does not mean banned from a mortgage – not all securitized loans are Fannie/Freddie and not all mortgages are securitized – although of late they nearly all are on both counts. And yes, I am saying owning a home is a bad move for those without jobs they are sure they will have in 10 years. But I do not give investment advice and all should see their own advisor.

Walking a way, after a year of no rent while the foreclosure process drags on, allows a build up of a nest egg to start over. Seems like a plan.

“People who expect to get jumbo mortgages in the future Fannie/Freddie banning simply doesn’t apply to them” – but that includes loans over 417000 to one million – a group that is not counted in the million dollar mortgage folks walk away headline. In the under $1 million jumbo loans may well have a lower walk away rate than those over 1 million – I do not know but I suspect it is so.

Thanks for the link. Excellent read.

DD,
Thanks for this. Reports about this news were all over MSNBC yesterday, including some coverage of this:

And it’s telling that Fannie Mae and Freddie Mac, which service low-income homes, are the ones so exercised by strategic defaults that they’re increasing penalties for borrowers who engage in them, including making them ineligible for a Fannie or Freddie-backed loan for seven years after the foreclosure.

Not just increasing penalties, but going after the walk-aways to make them pay. As one of the MSNBC news shows pointed out yesterday, Fannie/Freddie mortgages are by definition limited to lower priced housing. The fact that Fannie & Freddie are dunning the walk-aways must be paired with the relatively lax enforcement of high-end mortgages, which means that, as ever, the poor are getting hammered while the wealthy can walk away without paying a comparable price. That’s the big news here.

Bob in AZ