Lender Characteristics and the Neurological Reasons for Strategic Mortgage Default

Michael Seiler () and Eric Walden ()
Additional contact information
Eric Walden: Texas Tech University

Journal of Real Estate Research, 2014, vol. 36, issue 3, 341-362

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 financial 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 the borrower's impression of the lender's character. The results carry a number of policy implications illuminated within the study.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Journal Article: Lender Characteristics and the Neurological Reasons for Strategic Mortgage Default (2014)
Working Paper: Lender Characteristics and the Neurological Reasons for Strategic Mortgage Default (2014)
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