Lender Characteristics and the Neurological Reasons for Strategic Mortgage Default

30 Pages Posted: 28 Dec 2012

See all articles by Michael Seiler

Michael Seiler

College of William and Mary - Finance

Eric Walden

Texas Tech University - Area of Information Systems and Quantitative Sciences (ISQS)

Date Written: December 27, 2012

Abstract

In this study we use functional magnetic resonance imaging (fMRI) to understand how homeowners process non-financial information when considering strategic mortgage default. We find that borrowers initially attempt to inhibit their knee jerk reaction to retaliate against a lender who has engaged in egregious lending practices when compared to a financial conservative lender. Moreover, when defaults are rare, borrowers are less likely to default because violating the social norm results in feelings of disgust. Finally, when a lender refuses a loan modification, the borrower is found to seek retribution. Interestingly, granting even a modest loan modification removes the desire of homeowners to seek retribution towards their lender no matter the borrower’s impression of the lender’s character. The results carry a number of policy implications illuminated within the study.

Keywords: strategic mortgage default, loan modification, neurological finance, fMRI

Suggested Citation

Seiler, Michael and Walden, Eric A., Lender Characteristics and the Neurological Reasons for Strategic Mortgage Default (December 27, 2012). Available at SSRN: https://ssrn.com/abstract=2194253 or http://dx.doi.org/10.2139/ssrn.2194253

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

Eric A. Walden

Texas Tech University - Area of Information Systems and Quantitative Sciences (ISQS) ( email )

Lubbock, TX 79409
United States
806-742-1925 (Phone)

HOME PAGE: http://ericwalden.net

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