The Role of Informational Uncertainty in the Decision to Strategically Default
33 Pages Posted: 12 Jul 2014
Date Written: June 4, 2014
This study identifies a severe gap between the financial backlash borrowers believe awaits them after strategic mortgage default and the reality that lenders rarely pursue deficiency judgments. This, coupled with the social norm finding that borrowers widely view strategic default as immoral, leads us to recommend lenders and policymakers seeking to stem the tide of defaults to pursue a policy of informational opacity. We make several recommendations for how to carry out such a policy as well as what might need to change in society before the alternative policy of informational transparency becomes ideal.
Keywords: strategic mortgage default, informational transparency/opacity, informational uncertainty, lender recourse
JEL Classification: D10, D81, K12, K11, R20
Suggested Citation: Suggested Citation