Walking away from a mortgage, and why the rich don’t always get richer
In between your conversations about LeBron James this weekend, there’s a good chance you’ll find yourself in a talk about real estate, investments, or how you had a great idea but couldn’t capitalize on it because you didn’t have any money. The spork? That was my idea, I swear. Ditto for sleep pods, but I called it the Nap Café and I thought of it back in 1999. ”The rich get richer” everyone will tell you.
This time around, it’s not necessarily so. When you hear that phrase next time, use this bit of recent data from the New York Times:
“More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent.”1
With the lagging economy and difficulties selling or refinancing homes still fresh on everyone’s minds, it’s important to understand what it means to “walk away from” a mortgage (or a “voluntary default”). Essentially, the homeowner is willing to sacrifice his credit rating because he views the option of stopping payment and letting the bank take over a house worth less than the mortgage balance to be better than struggling to make payments on a loan with a negative net value when compared to the backing asset. It’s not that the rich don’t have any money; they are simply more equipped to handle a bad loan or two. The banks certainly would much rather receive loan payments than reduced value housing, so walking away from a mortgage doesn’t do anyone any favors. However, knowing that even the rich are stressing about money might make you feel a little better.
Read on:
NYTimes.com – Walk Away From Your Mortgage!
PowerLineBlog.com – Don’t Walk Away From Your Mortgage!
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