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The Washington Independent
The Washington Independent

What the Rich Say About Strategic Default

The New York Times and CoreLogic examined the data, and found that the rich are more likely to purposefully default on their mortgages -- to strategically

Elyse Woods
News
Last updated: Jul 31, 2020 | Jul 09, 2010

The New York Times and CoreLogic examined the data, and found that the rich are more likely to purposefully default on their mortgages — to “strategically default” — than lower-income homeowners:

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.

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. “The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

That the rich would default strategically more often makes plenty of sense. First of all, if you are lower-income, you might be less willing to default because your home is your biggest asset. (That is, if you get rid of your house without making anything off of the sale, you might end up broke on paper, unlike a wealthier person with a 401k and investments.) If you are lower-income, your mortgage is probably a higher percentage of your monthly take-home pay — meaning your default is more likely to be out of financial necessity than financial ruthlessness. Finally, the wealthy are likely more financially savvy.

That said, this article epitomizes my broader frustrations with the debate over strategic default. It fails to define strategic default — setting out what distinguishes a canny defaulter from one tapped-out and a few months away from insolvency. It says one in seven homes with a million-dollar loan is on the verge of foreclosure — but provides no data as to why that means that their defaulters are strategic. What demonstrates that those homeowners are choosing to give up their mortgages, rather simply realizing they cannot afford them anymore, other than anecdotes?

Elyse Woods | As a product marketing manager, I've had the opportunity to help a variety of companies improve their sales margins and audience reaction to new products. Since I am passionate about product perception, marketing, and company statistics, I have brought commitment and positive results to the companies with which I have worked. What makes a product successful fascinates and inspires me.

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