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Lender Characteristics and the Neurological Reasons for Strategic Mortgage Default

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  • Michael Seiler
  • Eric Walden

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.

Suggested Citation

  • Michael Seiler & Eric Walden, 2014. "Lender Characteristics and the Neurological Reasons for Strategic Mortgage Default," Journal of Real Estate Research, Taylor & Francis Journals, vol. 36(3), pages 341-362, January.
    • Handle: RePEc:taf:rjerxx:v:36:y:2014:i:3:p:341-362
    DOI: 10.1080/10835547.2014.12091398
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    Cited by:

    1. Marcus T. Allen & Justin D. Benefield & Christopher L. Cain & Norman Maynard, 2024. "Distressed Property Sales: Differences and Similarities Across Types of Distress," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 318-353, February.
    2. Lingxiao Li & Erdem Ucar & Abdullah Yavas, 2022. "Social Capital and Mortgage Delinquency," The Journal of Real Estate Finance and Economics, Springer, vol. 64(3), pages 379-403, April.
    3. Eli Beracha & Alexandre Skiba & Ken H Johnson, 2017. "Housing Ownership Decision Making in the Framework of Household Portfolio Choice," Journal of Real Estate Research, American Real Estate Society, vol. 39(2), pages 263-288.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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