The housing bust is now creeping into high-priced neighborhoods. According to a recent article in the New York Times, rich folks are walking out on their mortgages in record numbers. According to data compiled by the real estate analytics firm CoreLogic for the Times piece, one in seven homeowners with loans in excess of $1 million is seriously delinquent on payments. The Times article said many of them have simply stopped making payments on their loans, and the homes have gone into foreclosure.
Some of these rich folks were guilty of unrealistic optimism in taking out their loans. According to Ken Lowman, a Las Vegas real estate agent for luxury properties, the owners of homes under foreclosure “made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. They didn’t have a Plan B.”
But others are dumping houses for no reason other than they think they’re a bad investment. According to the Times, the delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent.
For example, the rapper Chamillionaire walked away from a $2 million house he purchased in Houston. “I just decided to let it go, give it back to the bank,” he said. “I didn’t feel like it was a good investment.”
Shame on you, Chamillionaire.
I remember a time in America when a handshake was a contract and a signature on a piece of paper was as good as gold. Today, both are worthless to the person who walks away from his word, leaving the bank and ultimately, taxpayers, in the lurch. And it’s even got a name — strategic default, which definitely sounds a lot better than “shucking one’s responsibility.”
Brent T. White, a law professor at the University of Arizona, who has studied strategic defaults, apparently doesn’t see any problem with their lack of ethic. In the Times article, he places the blame on the government and the banks, saying rich and successful people “may be 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.”
Granted, there were a lot of over-exuberant bankers during the housing boom years. But there were certainly a wealth of over-leveraged homebuyers wheeling and dealing to get into homes they couldn’t afford. When it all came crashing down, nobody stepped up to take responsibility for their actions. The banks were bailed out. The borrowers, apparently, are walking away.
If America is to regain its financial footing and soar to great economic heights once again, it must first relocate its lost sense of individual responsibility.
In the meantime, it appears there too many people who are long on cash, but short on character.