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64 Vand. L. Rev. 1545 (2011)
Breaching the Mortgage Contract: The Behavioral Economics of Strategic Default

handle is hein.journals/vanlr64 and id is 1555 raw text is: Breaching the Mortgage Contract:
The Behavioral Economics of
Strategic Default
Tess Wilkinson-Ryan                  64 Vand. L. Rev. 1547 (2011)
Underwater homeowners face a quandary: Should they make
their monthly payments as promised or walk away and save money?
Traditional economic analysis predicts that homeowners will
strategically default (voluntarily enter foreclosure) when it is
cheaper to do so than to keep paying down the mortgage debt. But
this prediction ignores the moral calculus of default, which is
arguably much less straightforward. On the one hand, most people
have moral qualms about breaching their contracts, even when the
financial incentives are clear. On the other hand, the nature of the
lender-borrower relationship is changing and mortgage lenders are
increasingly  perceived  as  remote,  profit-obsessed  entities
undeserving of moral concern. In the studies reported here, I tease
out three distinct psychological effects of this perception, including
the erosion of reciprocity norms, an increase in social distance, and
the destigmatization of foreclosure. The results have ramifications
for current debates about securitization and modification of
mortgage loans.

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