One commentator suggests the number of wealthy homeowners walking away from their large mortgages is on the rise:

Nationwide, foreclosures on loans over $1 million are up nearly 600 percent since 2008…

Walking away has even become something of a boast among the more-or-less wealthy – a solution with few downside risks that also marks the walker as a smart player.

That’s because California is one of a small number of “non-recourse” states. Here, the mortgage lender cannot recover the full value of the loan if the homeowner defaults; the lender can only recover the house, not the owner’s other assets.

The effect is producing a death spiral for loaded McMansions in some upscale neighborhoods. When owners default, they expand the inventory of over-priced houses, undercutting the value of similar homes in the neighborhood, lowering their resale value and prompting a new round of “strategic defaults” by other owners.

I wonder how lenders are responding to this issue. Would they move more or less quickly since these homes are worth more and the bank could make more money (though they might lose more on the mortgage)?

Another issue: how much does walking away from a large mortgage hurt someone who was able to get such a large loan in the first place? While foreclosures for “average homeowners” are often portrayed as huge problems (looking for somewhere to live, a hit to their credit rating), is this as much of an issue for those with bigger mortgages? According to this look at Beverly Hills, this decision is being made by some who can pay the mortgage but don’t want to deal with the decreased value of their homes:

Many are walking away not because they can’t pay, but because they judge it would be foolish to keep doing so…

She said she had seen in Beverly Hills a big increase in “strategic defaults,” in which owners who can still afford to make their monthly mortgage payment choose not to because the property is now worth so much less than the giant loan used to buy it during the housing bubble…

Bremner said she helped a client buy a Beverly Hills mansion last year that the prior owner had bought for over $4 million. He decided to stop paying his $3 million mortgage – even though he could easily afford it – when the value of the property had dropped to $2.5 million.

“They were able to comfortably cover the loan,” Bremner said. “They were just no longer willing to see the value of the property drop.”

If more wealthier homeowners are walking away from their mortgages, is there anything that should be done? Should they have harsher penalties if they have other assets to cover the mortgage? Should we be concerned that the Beverly Hills housing market is having difficulties, i.e. does this effect other housing markets or is it simply an issue between wealthy players?

It would be nice to have some exact numbers on how much this is happening across the country…