Stock Trading - Wealthy Who Default on their Home LoansThere is an old adage that says "if you owe the bank $1,000 you've got a problem, if you owe the bank $1 million the bank's got a problem."
Well, it appears this is equally true when it applies to mortgages. If you are rich you can live by different rules to the poor, and owing the bank $1 million on your home loan is just another business problem and what is even better is that it's the bank's problem not yours ! (See video below of "strategic mortgage defaulter" explaining his thinking.)
CBS News has reported that in wealthy communities, as the price of houses has fallen, some home owners who have taken out morgages have quickly realized that it really is not in their best interest to pay back their loan at all. The banks, however, have also realized it is not in their interest to foreclose.
As one wealthy home owner said "I bought it [the home] for $1.385 million. It is worth less than $800,000, maybe less." So what did he do? Did he lose sleepless nights wondering how he would pay back his loan, or if his credit score would be affected ? Did he run around and grovel to the bank trying to get a remortgage or renegotiate a new home loan ?
Nah, why bother ? Let the bank worry about such trivia. He simply stopped paying back his home loan "I haven't made a payment in two years. It was a business decision. It was an easy decision. I have a property worth six or seven hundred thousand less than when I bought it. I was making payments of 10,000 a month."
He has gone into "strategic default". He is in fact quite able to make payments, he has just decided he won't, as there is no point sinking money into a home that is worth less than his home loan. He is not the only luxury homeowner to have made this decision.
The figures are quite revealing 1 in 7 homeowners with mortgages over $1 million are seriously delinquent compared to only one in 12 with loans of less than $1 million. People with money and a regular and high pay check have much more freedom about what they choose to do with their money, people living on the bread line often have nowhere else to go, so they have to keep paying their mortgage.
The banks are also often slower to foreclose on $ 1 million dollar homes, for a number of reasons. First, expensive homes are harder to sell and cost more in upkeep (which would become the bank's problem if they foreclosed).
Realtors say banks can be slow to foreclose on luxury homes because an empty house can be bad for business. Plus an empty luxury home is not good for sales of other homes nearby.
People with money but who find themselves in a negative equity situation, in which the mortgage is higher than the actual value of the home, do not like throwing good money after bad.
This could lead to a wave of sympathy for the bankers ! Lol, only kidding.
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