The Blog @ Spolitics

NY Times: The More Debt You Have, The Richer and More Ruthless You Are

by Heywood U. Reedmore -- July 10, 2010 at 9:56 pm | In No, Seriously | No Comments

Says the NY Times:

…the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

By “rich” they mean people with a wealth of assets or high earnings, right? Wrong. They mean people with million-dollar mortgages, i.e., seven figures worth of debt.

If you’ve been following the mortgage mess you’ve doubtless heard that a big part of the problem was people buying homes they couldn’t really afford with little-to-nothing down and an interest rate poised to reset. The playbook was to capitalize on skyrocketing home prices, refinance before the interest rates rose and pocket the home’s appreciation.

Once home prices crashed, these buyers found themselves with a mortgage they could barely afford for a home that was no longer worth what they owed on it and a likely interest-rate hike in the offing.

So why are high-end homeowners defaulting? Well, they can’t prove it, but the NY Times believes it’s because these people rich with debt are “ruthless” and unconcerned with the “civic good.” The Times demonstrated this by quoting a woman who said she and her husband had just lost their jobs and could no longer afford their mortgage. As if we’re supposed to believe that. This is recovery summer, baby. And if that’s not enough to convince you, there was also this:

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Nothing says ruthlessness like an abandoned water gun.

Of course, there are other explanations for why high-end homes would see higher delinquency rates. First off, super jumbo loans are lot more risky to begin with: high-end homes tend to drop more in price during a downturn and they’re also harder to sell in a down market. Super jumbo loans have higher interest rates than FHA-backed mortgages, but, up until 2007, ARMs helped make homes in this price-range more affordable. The credit squeeze especially affected jumbo mortgages, increasing the required LTV which made it a lot more difficult to get one — or refinance one — of these loans. If you had an ARM, this was a big problem. In other words, all the chaos we’re seeing in the housing market has been exacerbated at this level. Lastly, none of these borrowers are eligible to participate in the government’s loan modification or refinancing programs (not that they should be).

But I can’t blame the New York Times for failing to mention any of this. I didn’t stand face-to-face with that squirt gun. It may have scared me senseless, too. Besides, it’s not like they made total jackasses of themselves.