Lender characteristics and the neurological reasons for strategic mortgage default

Michael J. Seiler, Eric Walden

Research output: Contribution to journalArticle

11 Scopus citations

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 financially 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 what their impression of the lender may be. The results carry a number of policy implications.

Original languageEnglish
Pages (from-to)341-362
Number of pages22
JournalJournal of Real Estate Research
Volume36
Issue number3
StatePublished - 2014

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