Walking Away From Million-Dollar Mortgages - NYTimes.com

When you hear or read about problems in the housing market, usually the discussion is focused on the lower end, subprime mortgages. But it appears (judging from this article in the New York Times this morning) that people are walking away from their mortgages on the upper end as well.

Here's an excerpt:

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.

Even more disturbing:

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

Think about that: roughly one out of every four homes in ritzy vacation spots like the Hamptons or Nantucket that have huge mortgages are at least delinquent. Given the fact that if they can't sell vacation homes in the middle of summer, I would bet that by this time next year they are in foreclosure.

Walking Away From Million-Dollar Mortgages - NYTimes.com

Now the tone of the article is one of mild outrage. And while I am not suggesting that we should have any sympathy for these folks, I would also take a step back and ask whether their behavior is any different than what goes on in corporate America.

Corporations walk away from their debt obligations all of time: just look at the airline industry as a prime example. When a company files for Chapter 11 bankruptcy, it is usually thought to be the act of thoughtful managements trying to figure out a way to save jobs (including their own).

Even countries will default - I mean, how many times has Argentina defaulted on its debt over the last century, only to come back to the markets and be greeted with open arms (and open wallets)?

From a purely economic standpoint, then, these borrowers who owe over $1 million on their primary or secondary homes are doing a very rational act: cutting their losses.

Problem is, we don't expect individuals to act as corporations. But if this starts a trend, it could have very serious implications for the housing market.