Collateral Enforcement and Strategic Behavior: Evidence from a Foreclosure Moratorium in Greece
58 Pages Posted: 5 Apr 2017 Last revised: 2 Feb 2020
Date Written: February 1, 2020
We exploit the introduction of a foreclosure moratorium and a debt-discharge process in Greece that mitigate the repossession risk of primary residence mortgages to separate strategic from non-strategic delinquencies. We find considerable heterogeneity in strategic behavior among homeowners. Even though 37% of delinquencies are strategic, only 22% of borrowers who are able to pay stop servicing their mortgage, despite the banks' inability to repossess the house. Our findings suggest that factors beyond collateral enforcement and pecuniary costs --- borrower sophistication, prior engagement in moral hazard, banking relationships, and liquidity preference --- play an important role in strategic behavior.
Keywords: Strategic delinquency, Foreclosure moratorium, Mortgage default, Moral hazard
JEL Classification: G21, D10, K35
Suggested Citation: Suggested Citation