Fear, Shame, and Guilt: Economic and Behavioral Motivations for Strategic Default

Real Estate Economics, Forthcoming

Posted: 22 Feb 2012

See all articles by Michael Seiler

Michael Seiler

College of William and Mary - Finance

Vicky L. Seiler

Johns Hopkins University

Mark Lane

Old Dominion University; Hawaii Pacific University - College of Business

David M. Harrison

UCF; Texas Tech University

Date Written: February 21, 2012

Abstract

This study examines underwater primary resident homeowners to identify why some decide to strategically default while others do not. We find that realized shame and guilt are consistent with ex ante expectations. However, the financial backlash experienced by strategic defaulters is less than anticipated, causing strategic defaulters not to regret their actions. State-specific bankruptcy exemption levels and real estate laws only marginally explain the decision to strategically default, partly because the decision to walk away from a mortgage is emotional, and partly because the implementation of these laws is uncertain and confusing to distressed borrowers. Rather, we find key strategic default drivers include the homeowner’s expectation of future real estate price movements, frustration with the lender, moral evaluation of the decision to strategically default, loan knowledge, political ideology, gender, income and age.

Keywords: strategic default, bankruptcy laws, foreclosure laws, behavioral real estate

JEL Classification: R20, G18, O51

Suggested Citation

Seiler, Michael and Seiler, Vicky L. and Lane, Mark and Harrison, David M., Fear, Shame, and Guilt: Economic and Behavioral Motivations for Strategic Default (February 21, 2012). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2008915

Michael Seiler (Contact Author)

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

Vicky L. Seiler

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Mark Lane

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

HOME PAGE: http://bpa.odu.edu/

Hawaii Pacific University - College of Business ( email )

Honolulu, HI 96813
United States

HOME PAGE: http://www.hpu.edu

David M. Harrison

UCF ( email )

Orlando, FL 32816-1400
United States
407-823-1127 (Phone)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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