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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.

Suggested Citation

  • Luigi Guiso & Paola Sapienza & Luigi Zingales, 2010. "The Determinants of Attitudes towards Strategic Default on Mortgages," Economics Working Papers ECO2010/31, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2010/31
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