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Strategic Mortgage Default in the Context of a Social Network

Listed author(s):
  • Michael J. Seiler


    (Old Dominion University)

  • Andrew J. Collins


    (Old Dominion University)

  • Nina H. Fefferman


    (Rutgers University)

Registered author(s):

    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.

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    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 35 (2013)
    Issue (Month): 4 ()
    Pages: 445-476

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    Handle: RePEc:jre:issued:v:35:n:4:2013:p:445-476
    Contact details of provider: Postal:
    American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323

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    Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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