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Strategic Mortgage Default in the Context of a Social Network

Author

Listed:
  • Michael J. Seiler

    () (Old Dominion University)

  • Andrew J. Collins

    () (Old Dominion University)

  • Nina H. Fefferman

    () (Rutgers University)

Abstract

A serious and imminent threat to a recovery of the global recession comes in the form of a burgeoning financial contagion known as strategic mortgage default. We theorize that the advocacy of strategic default can be likened to a disease, and as such, we employ a methodology from the field of epidemiology to measure how quickly this disease can spread throughout a society. We find that in our current fragile market, advice by influential Mavens for underwater homeowners to exercise their put option could result in a flood of strategic defaults causing a contagious downward spiral of residential real estate prices. Asymmetrically, when Mavens recommend homeowners not default, their ability to save a failing market is far more limited.

Suggested Citation

  • Michael J. Seiler & Andrew J. Collins & Nina H. Fefferman, 2013. "Strategic Mortgage Default in the Context of a Social Network," Journal of Real Estate Research, American Real Estate Society, vol. 35(4), pages 445-476.
  • Handle: RePEc:jre:issued:v:35:n:4:2013:p:445-476
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    Cited by:

    1. Michael J. Seiler, 2015. "The role of informational uncertainty in the decision to strategically default," Framed Field Experiments 00621, The Field Experiments Website.
    2. Seiler, Michael J., 2015. "The role of informational uncertainty in the decision to strategically default," Journal of Housing Economics, Elsevier, vol. 27(C), pages 49-59.
    3. Michael J. Seiler, 2016. "The Perceived Moral Reprehensibility of Strategic Mortgage Default," Framed Field Experiments 00622, The Field Experiments Website.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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