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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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    Citations

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    Cited by:

    1. 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.
    2. Marcus T. Allen & Justin D. Benefield & Christopher L. Cain & Norman Maynard, 2024. "Distressed Property Sales: Differences and Similarities Across Types of Distress," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 318-353, February.
    3. Calabrese, Raffaella & Crook, Jonathan, 2020. "Spatial contagion in mortgage defaults: A spatial dynamic survival model with time and space varying coefficients," European Journal of Operational Research, Elsevier, vol. 287(2), pages 749-761.
    4. Ying Huang & Ronald W. Spahr & Mark A. Sunderman, 2020. "The Impact of Default and Foreclosure on Housing Values: Rings Vs. Neighborhoods Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 60(3), pages 338-374, April.
    5. Chrysovalantis Gaganis & Panagiota Papadimitri & Fotios Pasiouras & Menelaos Tasiou, 2023. "Social traits and credit card default: a two-stage prediction framework," Annals of Operations Research, Springer, vol. 325(2), pages 1231-1253, June.
    6. 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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