Determinants of Strategic Behavior: Evidence from a Foreclosure Moratorium
55 Pages Posted: 12 Feb 2021 Last revised: 2 Mar 2022
Date Written: March 1, 2022
We study mortgagors' attitudes toward strategic behavior following a foreclosure moratorium in Greece. We identify strategic delinquencies by exploiting the concurrent introduction of a debt discharge process that provides generous debt relief for borrowers who prove their inability to pay but entails high costs for those who can afford their mortgages. This setting creates distinct optimal strategies for delinquent borrowers: non-strategic mortgagors participate in the debt discharge process, whereas strategic borrowers use the moratorium to protect their homes. Our results indicate borrower sophistication, aversion to moral hazard, banking relationships, and preference for liquidity play an important role in strategic behavior.
Keywords: Strategic behavior, credit market interventions, moratorium, moral hazard
JEL Classification: G21, D10, K35
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