Biggest Defaulters on Mortgages Are the Rich by David Streitfeld, New York Times, July 8, 2010

It seemed apt to post this article that just came out, given that it relates to our discussions at the beginning of the class. I found one quote in the article to be particularly striking:

"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."

Is ruthless the right word? Or is pragmatic better? Mr. Khater seems to be implying that one is bad or cruel for acting in his own self interest. Thoughts?

-- DavidGoldin - 09 Jul 2010

I read this article this morning on the train.

Remember in one of the early classes Eben torn down our perceptions of employment choice, of honesty and loyalty and other such values that can be taken advantage of by the unscrupulous? I think the situation there illustrates that. The article at the center of so much discussion in February conveyed a tone of the intelligent writer discovering a trick simple-minded middle class folks with underwater mortgages were too honest and straightforward to figure out. Interesting how the writer could not obtain interviews with more than one defaultee; I wish the article could have probed into all the same issues the article discussed in class did, regarding their attachment to their homes, their sense of shame, the worth of their "word."

I think Khater sounds rather in awe of the wealthy defaultees for being able to sever themselves so quickly from their homes. No dithering and length periods of sentimentality for them! Lenders, the big companies, sell these values and take advantage of these values to those who have so little that they will latch on to such intangible, personal rewards, while ignoring those who have enjoyed financial and academic success because they are indeed more "ruthless" in that they are concerned with status markers such as their former income, their employment history and their education, and with a history of successes (these all sound like enterpreneurs, don't they?), they feel more comfortable starting again.

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I accidentally erased the name of the previous commentor and can't remember who it was. Anyway, I read this article and had much of the same questions/reactions as you, David. I think the article briefly touched on it, but the fact of the matter is that the rich can "afford" to lose their vacation home or a pure economic investment. For many middle and working class people, their home is of more sentimental value than that -- it is the culmination of years of hard work, a result of scraping by to save up enough for a down payment, the feeling of accomplishing something that their parents didn't, but always wanted them to. In other words, a home is an emotional investment, not just a financial one. Notwithstanding all of the memories created in a home that an average human being would value, it is much, much more. In fact, it is probably the only thing that demonstrates their material success. So, no, it may not be rational; but when emotions are involved, it rarely is.

Another thing that is glossed over is that rich people can simply move to one of their other homes, or start a business and maybe buy a home on a line of credit approved for the business. Working/middle class people just don't have that option. When they walk away from there home, where would they go? The homeless shelter or the streets, that's where. Not only are people's retirement accounts depleted, so they have no cash reserves, but there credit is completely shot. In most places, this wouldn't even allow you to rent an apartment, much less try to pull yourself together and buy another house. I think what the rich are doing is absolutely self-interested, but what's so wrong with that? My problem with the way the article was framed was that it basically implied that, by not doing so, working/middle class people have demonstrated that they're not rational, or capable of acting in their own self-interest. I simply do not believe this is the case.

-- JenniferGreen - 10 Jul 2010

The first commenter is Cecilia Wang.

Jennifer - I appreciate your comments on the framing of the article. I didn't think about this. I got caught up on Mr. Khater's use of the word "ruthless" to describe defaulting on a home loan, even when it is in one's best interest. Having read your comments (and re-read the article), it seems like "ruthless" is being used in a good way. Looking out for one's own interests isn't "nice" but it is rational and perhaps even admirable. The article does seem to be implying that the working/middle class is incapable of being "ruthless" in a good way and it does ignore many of the issues you discussed. Thanks for bringing them up!

-- DavidGoldin - 10 Jul 2010