Mortgage Woes of the Wealthy
January 21, 2010
I’m usually not in the ‘mood’ to talk about the problems the average wealthy American has when there are so many middle class Americans struggling to get by. However, this bit of information caught my attention.
Around 12% of U.S. mortgages of $1 million or larger were late during the Fall of 2009. Thats double the rate for loans under $250,000 and almost triple the default rate on million dollar mortgages 12 months earlier, according to First American CoreLogic Inc., a California-based research firm.
Lenders have tightened on standard conforming loans, but have tightened even more on the jumbo and non-conforming loans. Banks can’t sell these loans through the traditional means of Fannie Mae or Freddie Mac. Lenders consider these the highest risk and are now requiring as much as a 40%-50% down payment. Even the borrowers with the down payment, perfect credit and plenty of income are having problems.
A lot of these loans made over the past few years were adjustable rate or had balloon payments that are now coming due. The wealthy had been able to get loans with payments that didn’t even cover the interest due with the promise to make higher payments later. Although rates are lower, some jumbo loan borrowers are facing catch up payments. With the decline in home values hitting high end homes even harder than the average home, these borrowers are faced with the decision to take a loss, foreclosure or try to refinance in a market that is almost impossible for them to do so. Currently, more than 73% of interest only loans are underwater. The rich are finding it easier and more financially beneficial to walk away from a lot of these bad loans.
Wealthy Americans have the kind of financial privileges…… and problems…. that the rest of us can only dream about. Granted, the most difficult problems the wealthy are having with mortgages is on second and vacation homes.
One important fact to keep in mind: the top 20% of U.S. earners account for 60% of consumer spending. The is a huge fact as we continue to face economic recovery. If even a small percentage of the wealthy are having trouble paying their mortgages, that affects what they can purchase in general consumer goods.
Aren’t most of us so relieved that we don’t have that problem to deal with.
Scridb filter
