The Affluent Strategic Defaulters
We have some high-quality material today. Reading the New York Times this morning, we noticed that we are hearing the expression “strategic default” lots more lately. Strategic default is basically letting your house go into foreclosure. The home owner chooses not to make payments because the value of your property has gone downhill. The house owner might also not be making payments since eventually they will not be able to make payments. So they are just speeding up the inevitable.
Core Logic came up with some interesting figures on what the wealthy are doing with their wealth and what some of the middle class are doing with their wealth. More than one in seven house owners with million dollar loans are critically deliquent. Below a million dollars, the statistics are just one in twelve homes. Core Logic chief economists believe that the wealthy are a little more merciless. Fannie Mae and Freddie Mac are begging house owners to keep making their mortgage payments, but the affluent are not obliged to do so.
Investment homes with an original mortgage over a million dollars, have a deliquency rate is 23%. For cheaper investments the deliquency percentage is around 10%. The wealthy and successful are less susceptible to the disgrace and fear mongering used by the gov’t and mortage banking business to keep underwater home owners from acting in their financial best interest.
It is fascinating that the article says bad things about the wealthy making this business decision. Many lenders are addressing strategic default. We don’t make a stand on either side of it. However, the affluent are making a good business choice. If the middle class was a little more economically well-informed, maybe they would make the identical choice.
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