Strategic Mortgage Default: The Effect of Neighborhood Factors

29 Pages Posted: 19 May 2015

See all articles by Michael Bradley

Michael Bradley

Independent; CoreLogic (Headquarters) - CoreLogic (Virginia Branch)

Amy Crews Cutts

Federal Home Loan Mortgage Corporation (FHLMC) - Housing Economics and Financial Research; Equifax, Inc.

Wei Liu

CoreLogic (Headquarters) - CoreLogic (Texas Branch)

Multiple version iconThere are 2 versions of this paper

Date Written: Summer 2015

Abstract

This article studies strategic default - the willingness of a borrower to walk away from a mortgage when the value of the home falls below the unpaid principal balance despite an ability to pay. This study differs from the literature in two fundamental ways. First, we use unique data assets describing the household's equity position and capacity to carry the debt in addition to credit performance to identify strategic defaulters accurately. Second, we address externalities from local foreclosures and other strategic defaults and find that the incidence of strategic default is sensitive to the presence of other nearby strategic defaulters. These results have significant implications for foreclosure and loss mitigation policies employed by servicers and investors.

Suggested Citation

Bradley, Michael and Crews Cutts, Amy D. and Liu, Wei, Strategic Mortgage Default: The Effect of Neighborhood Factors (Summer 2015). Real Estate Economics, Vol. 43, Issue 2, pp. 271-299, 2015. Available at SSRN: https://ssrn.com/abstract=2607755 or http://dx.doi.org/10.1111/1540-6229.12081

Michael Bradley (Contact Author)

Independent ( email )

No Address Available

CoreLogic (Headquarters) - CoreLogic (Virginia Branch)

374 Maple Ave E
Vienna, VA 22180
United States

Amy D. Crews Cutts

Federal Home Loan Mortgage Corporation (FHLMC) - Housing Economics and Financial Research ( email )

Mailstop 484
8200 Jones Branch Drive
McLean, VA 22102
United States
(703) 903-2321 (Phone)
(703) 903-4045 (Fax)

Equifax, Inc. ( email )

McLean, VA 22102
United States

Wei Liu

CoreLogic (Headquarters) - CoreLogic (Texas Branch) ( email )

1 CoreLogic Drive
Westlake, TX 66262
United States

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