Mortgage Finance, Affordable Homeownership, Mortgage Default & Foreclosure
Published Article – Peer Reviewed | February 2013

Strategic Default Behavior and Attitudes among Low-income Homeowners

Real Estate Finance
Sarah F. Riley
Research funded by Ford Foundation

Senior research economist Sarah F. Riley examines data from the center’s long-term study of a model affordable mortgage program and finds most low-income mortgage defaults are not strategic and that low-income homeowners are less likely than others to engage in strategic default.

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Abstract

Sarah Riley uses data from a nationwide affordable mortgage program (the Community Advantage Program) to examine the incidence and drivers of strategic default behavior and attitudes among low-income homeowners. She finds that most low-income mortgage defaults are not strategic and that low-income homeowners are less likely than others to engage in strategic default, despite the fact that they express similar beliefs about the morality and prevalence of strategic default and a greater willingness to walk away from an underwater mortgage.

The most salient predictors of strategic default behavior and attitudes for the low-income population are household income, the mortgage interest rate, geographic location, the year of loan origination, and the loan servicer. Of these, geography has the greatest impact. Beliefs about the morality of strategic default are also strongly related to an expressed willingness to default strategically.

Riley infers that survey measures may be an imprecise way to measure the true strategic default propensity of the low-income population.


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