Asymmetric Dominance and Its Impact on Mortgage Default Deficiency Collection Efforts

Abstract

The surge in mortgage default rates during the financial crisis has led to a corresponding dramatic increase in the type and number of firms who are entering the deficiency collection space. As such, we study the methods by which hedge funds and private equity collection firms can more profitably unwind this toxic debt. Specifically, we employ the theory of Asymmetric Dominance and find support that introducing a similar payment amount (i.e., a "decoy") significantly induces borrowers to change their preference from one that is optimal for them to one that is suboptimal. We then employ the Left-Most Digit effect in a new manner and demonstrate a statistically significant ability to mitigate the Asymmetric Dominance effect. Finally, we empirically find that Caucasians, males, and those of a greater net worth are more adept at avoiding violating the Independence of Irrelevant Alternatives axiom.

Price and Trading Volume in Real Estate Markets

“…9 For simplicity, we abstract the role of real estate brokers and mortgage financing in housing prices, recent studies study the misalignment of incentives and information communication problem between brokers and home sellers (e.g. Bian, Turnbull, and Waller, 2017;Xie 2018Xie , 2019, and others examine the role of mortgage financing and subprime mortgages in home prices and how they cause housing bubble conditions where the demand for lending fueled lenders' willingness to extend loans to more risky buyers, which in turn helped to further fuel the housing bubble and eventually led to the 2007-2009 housing crash due to borrowers' defaults for various economic and behavioral reasons (e.g., Bian, Lin and Liu, 2018;Seiler, 2015aSeiler, , 2015bSeiler, , 2018.…”

Housing debt and elderly housing tenure choices

“…Numerous studies examine the role of subprime mortgages in home prices and how they cause housing bubble conditions where the demand for lending fueled lenders' willingness to extend loans to more risky buyers, which in turn helped to further fuel the housing bubble and eventually led to the 2007-2009 housing crash due to borrowers' defaults for various economic and behavioral reasons (e.g., Bian et al, 2018;Seiler, 2015aSeiler, , 2015bSeiler, , 2018. depends on the "thinness" of housing equity relative to the house value.…”

Clustering and regional growth in the housing market: Evidence from Indonesia

“…The global crisis in 2008 -2009 caused by the existence of subprime mortgages in the United States proved that the housing market has a very broad impact. This crisis was triggered because there were improper home payments to lending institutions which caused bankruptcy due to home sales (takeovers) that could not be made from loans issued (Bian, Lin, & Liu, 2018;Collins, Harrison, & Seiler, 2015;Pavlov & Wachter, 2011;Seiler, 2018).…”