First, hat tip to Edward Harrison over at CreditWritedowns for posting: Are the rich the biggest strategic defaulters? Not only is that post a must read, but I also suggest you take a gander at his blog, and consider becoming his friend on Facebook. Thanks to FB, I caught this great article. He has some great and very knowledgeable posts from a historical perspective on the credit bubble. Granted, he can be a bit wonkish, but at the root of it all, he is one of the most knowledgeable people on the internet on how and why this credit debacle became what it was and what is to come.

That being said, David Steitfield, over at the NY Times has a great piece titled: Biggest Defaulters on Mortgages Are the Rich. He posits that loans greater than $1,000,000 are strategically defaulting at a higher rate than those with a lesser balance. He backs it up with data from CoreLogic, and he goes out in the field to investigate the homes in foreclosure. Take note local reporters; you have to investigate a story to back up your claims. Think about it? If the NY Times is willing to send people 3000 miles to investigate a story in California, then you should be willing to get out of the office and travel 15 miles to verify your research. In fact, I have met Peter Goodman as he was investigating WAMU.  I have only met Matt Padilla over at the OC Register, and he doesn’t work there anymore. Just sayin…

The money quotes:

No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

…..

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

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.

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.

…..

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

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.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

…..

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

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.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

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But this is still Silicon Valley, where failure can always be considered a prelude to success.

In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”

That is right — planet denial still has plenty of room for more residents.

I decided to check out what that means for Orange County. According to Foreclosure Radar, there are 13,559 homes that have received a notice of default or notice of trustees sale in the last 120 days. This excludes those that have received NODs or NTSs beyond 120 days, and currently in NOD or NTS status. I wish Foreclosure Radar made it easy to search those that are currently NOD or NTS, but they don’t. However, if they did, then that number would be much larger. In fact, I would guess that it may even be over 30,000. I even had a little birdie tell me about a couple of NTSs that got their NODs back in 2008. This isn’t an anomaly; this is the norm.  NODs from 2008 are just now being dealt with in earnest.

The only problem; too many of the loans in Foreclosure Radar do not show a loan amount. So, what I did was search loans of $1 and above in first position, and the result was 10,243. Keep in mind, if the county hasn’t properly recorded the lien, then Foreclosure Radar may not have the proper position of the lien. I then searched for loans with balances of $750,000 and above, and the result was 1,292. Yes, the result is just over 12% of those in NOD or NTS, but what does that mean?

Does this mean that only a few high-end homes are in default? Or does that mean, the only way to properly research it is to search those that are currently in NOD or NTS including those beyond 120 days? Or does that mean, there are still a significant amount of homes in the sub-$750,000 range that are in trouble, despite the loan mod and short sales? Could that mean a potential problem in the supply for the lower-end of the market in the new future?

I’m not claiming that I know what this means without further research. However, this makes one think what it really means and how it will effect the market. Is this a high-end problem, or a future low-end debacle?

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