Well, shock of shocks, it turns out that not only is walking away from properties that are underwater something that businesses do all the time, but rich people are doing it with their homes. The New York Times has a long, detailed analysis of people who are underwater and just walking away from their homes rather than paying more and more. Of note:
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 is 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.
So, to put it a different way, homes with mortgages over one million dollars are 75% more likely to be delinquent than homes with values under one million dollars. And if mortgage delinquency is the big underlying cause of the popped housing bubble (see what happened when Wall Street started packaging subprime mortgage backed CDO tranches that couldn’t muster a Triple A rating together to get ones that magically did), then the blame cannot rightly be placed on poor people who took out mortgages they couldn’t pay to buy houses they couldn’t afford. As Duncan Black writes, “As is so often the case, the mainstream media got it completely wrong initially, painting it as a “subprime” crisis due to bad behavior by unworthy brown people.”
Beyond the straight economics of who and what caused this crisis, it’s important to note that there has been a strong push in the media and from the CNBC types to define strategic defaul as inherently immoral (even though businesses do it daily). The morality play targeted largely poor minorities and intrinsically sought to taint anyone who does decide to walk away with the tinge of culpability for nearly bringing down Wall Street. Of course, walking away is neither immoral, nor as we now see, limited to the subprime sector.