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Asymmetric Dominance and Its Impact on Mortgage Default Deficiency Collection Efforts

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  • Michael J. Seiler

Abstract

The surge in mortgage default rates during the financial crisis has led to a corresponding dramatic increase in the type and number of firms who are entering the deficiency collection space. As such, we study the methods by which hedge funds and private equity collection firms can more profitably unwind this toxic debt. Specifically, we employ the theory of Asymmetric Dominance and find support that introducing a similar payment amount (i.e., a “decoy”) significantly induces borrowers to change their preference from one that is optimal for them to one that is suboptimal. We then employ the Left‐Most Digit effect in a new manner and demonstrate a statistically significant ability to mitigate the Asymmetric Dominance effect. Finally, we empirically find that Caucasians, males, and those of a greater net worth are more adept at avoiding violating the Independence of Irrelevant Alternatives axiom.

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  • Michael J. Seiler, 2018. "Asymmetric Dominance and Its Impact on Mortgage Default Deficiency Collection Efforts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(4), pages 971-990, December.
    • Handle: RePEc:bla:reesec:v:46:y:2018:i:4:p:971-990
    DOI: 10.1111/1540-6229.12176
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    Cited by:

    1. David M. Harrison & Kimberly F. Luchtenberg & Michael J. Seiler, 2023. "Improving Mortgage Default Collection Efforts by Employing the Decoy Effect," The Journal of Real Estate Finance and Economics, Springer, vol. 66(4), pages 840-860, May.
    2. Lin, Zhenguo & Liu, Yingchun & Xie, Jia, 2024. "Market distortions with collusion of agents," Journal of Banking & Finance, Elsevier, vol. 162(C).
    3. Jackson T. Anderson & David M. Harrison & Michael J. Seiler, 2022. "Reducing Strategic Forbearance under the CARES Act: an Experimental Approach Utilizing Recourse Attestation," The Journal of Real Estate Finance and Economics, Springer, vol. 65(2), pages 230-260, August.
    4. Xun Bian & Zhenguo Lin, 2022. "Housing debt and elderly housing tenure choices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(5), pages 1360-1397, September.

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