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The Determinants of Attitudes towards Strategic Default on Mortgages

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  • Luigi Guiso
  • Paola Sapienza
  • Luigi Zingales

Abstract

We use survey data to study American households' propensity to default when the value of their mortgage exceeds the value of their house even if they can afford to pay their mortgage (strategic default). The cost of defaulting strategically increases in wealth, but at a decreasing rate. It is driven both by pecuniary and non pecuniary factors, such as views about fairness and morality. Exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2010/31.

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Date of creation: 2010
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Handle: RePEc:eui:euiwps:eco2010/31

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Cited by:
  1. Sumit Agarwal & Gene Amromin & Itzhak Ben-David & Souphala Chomsisengphet & Douglas D. Evanoff, 2013. "Predatory Lending and the Subprime Crisis," NBER Working Papers 19550, National Bureau of Economic Research, Inc.
  2. Thomas Schelkle, 2014. "Mortgage Default during the U.S. Mortgage Crisis," Working Paper Series in Economics 72, University of Cologne, Department of Economics.
  3. Carrasco, Vinicius & Salgado, Pablo, 2014. "Coordinated strategic defaults and financial fragility in a costly state verification model," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 129-139.
  4. Grenadier, Steven R. & Malenko, Andrey & Strebulaev, Ilya A., 2014. "Investment busts, reputation, and the temptation to blend in with the crowd," Journal of Financial Economics, Elsevier, vol. 111(1), pages 137-157.
  5. Agatha M. Poroshina, 2014. "Credit Risk Modeling Of Residential Mortgage Lending In Russia," HSE Working papers WP BRP 30/FE/2014, National Research University Higher School of Economics.
  6. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2014. "Predatory lending and the subprime crisis," Journal of Financial Economics, Elsevier, vol. 113(1), pages 29-52.

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