The Determinants of Attitudes towards Strategic Defaults in Mortgages
We use survey data to measure households’ propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The willingness to default increases both in the absolute and in the relative size of the home-equity shortfall. Our evidence suggests that this willingness is affected both by pecuniary and non-pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.
Guiso, Luigi, Paola Sapienza and Luigi Zingales. Forthcoming. The Determinants of Attitudes towards Strategic Defaults in Mortgages. Journal of Finance.