Strategic Mortgage Default: The Effect of Neighborhood Factors

Bradley, Michael G.; Cutts, Amy Crews; Liu, Wei

doi:10.1111/1540-6229.12081

Cited by 45 publications

(20 citation statements)

References 16 publications

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“…Borrowing money is associated with moral hazard, especially for loans not backed by collateral. Borrowers sometimes strategically default, which means they walk away from a debt despite having the ability to pay (Bradley, Cutts, & Liu, 2015;Chan, Haughwout, Hayashi, & Van Der Klaauw, 2016). While defaulting on credit card debt typically hurts an individual's credit card score for some years, lenders holding unsecured debt can do little beyond restricting access to future credit and harassing borrowers (Ausubel, 1997;Lopes, 2008).…”

Section: Review Of Literaturementioning

confidence: 99%

Ethical Behaviors and Wealth: Generation Y’s Experience

Zagorsky¹

2017

Journal of Financial Counseling and Planning

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This research investigates if ethical behaviors and personal finances are related using a large scale U.S. random survey called the National Longitudinal Survey of Youth 1997 (NLSY97). Fifteen indicators covering both ethical and unethical behaviors are compared to net worth for people in their 20s and 30s, who are called Generation Y. Breaking rules, stealing, and being arrested are associated with less wealth in this generation. Results suggest that among people in their early 20s, there is little or no relationship between ethical behaviors and wealth. However, as this cohort ages, a positive relationship between acting more ethically and wealth emerges.

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Section: Review Of Literaturementioning

confidence: 99%

Ethical Behaviors and Wealth: Generation Y’s Experience

Zagorsky¹

2017

Journal of Financial Counseling and Planning

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“…In Online Appendix A we focus on three studies in particular:Experian and Oliver Wyman (2009),Guiso et al (2013), andBradley et al (2015).…”

mentioning

confidence: 99%

Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default

Gerardi¹,

Herkenhoff

Ohanian³

et al. 2017

The Review of Financial Studies

203

100

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Prior research has found that job loss, as proxied for by regional unemployment rates, is a weak predictor of mortgage default. In contrast, using micro data from the PSID, this paper finds that job loss and adverse financial shocks are important determinants of mortgage default. Households with an unemployed head are approximately three times as likely to default as households with an employed head. Similarly, households that experience divorce, report large outstanding medical expenses, or have had any other severe income loss are much more likely to default. While household-level employment and financial shocks are important drivers of mortgage default, our analysis shows that the vast majority of financially distressed households do not default. More than 80 percent of unemployed households with less than one month of mortgage payments in savings are current on their payments. We argue that this has important implications for theoretical models of mortgage default as well as for loss mitigation policies. Finally, this paper provides some of the first direct evidence on the extent of strategic default. Wealth data suggest a limited scope for strategic default, with only one-third of underwater defaulters having enough liquid assets to cover one month's mortgage payment. Terms of use: Documents in

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“…We also show that the cumulative defaults are significantly lower under the PILM mortgages than under the traditional FRM mortgage. Mortgage defaults have spillover effects (Mian et al [32], Bradley et al [8]), impose social costs (Andritzky [4]), and thus to the extent that these new designs reduce defaults this is another advantage.…”

Section: Lender's Valuationmentioning

confidence: 99%

“…This is confirmed by the empirical evidence which shows that the association between negative equity and default is stronger when a borrower is also financially constrained (Elul et al [16], Gerardi et al [19]). A particular type of default arising from negative equity is 'strategic default' (Guiso et al [22], Bradley et al [8], Bhutta et al [7]), which occurs when a borrower is in a negative equity position but still capable of making the mortgage payments. Strategic default can be seen as an explicit exercise of the default option.…”

Section: Introductionmentioning

confidence: 99%

Improving Risk Sharing and Borrower Incentives in Mortgage Design

Mei

Boyle

2019

North American Actuarial Journal

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In a traditional fixed rate mortgage, the borrower pays a fixed amount each period regardless of the value of the mortgaged property. One problem with this contract is that the borrower is less willing to pay when the house value falls. This was clearly seen in the 2008 financial crisis and its aftermath when mortgage default rates and foreclosures skyrocketed as the housing market crashed. A more efficient contract design should link payments to house prices so that the borrower's incentive to pay is not undermined by a decline in property value. In addition this design can save the lender the deadweight foreclosure costs. In this paper we examine two proposed index linked mortgages which have this risk sharing feature. We analyze the effect of both designs on borrower incentives in a multi-period setting.

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Strategic Mortgage Default: The Effect of Neighborhood Factors

Cited by 45 publications

References 16 publications

Ethical Behaviors and Wealth: Generation Y’s Experience

Ethical Behaviors and Wealth: Generation Y’s Experience

Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default

Improving Risk Sharing and Borrower Incentives in Mortgage Design

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