I agree, this is a fascinating.

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

Excerpt:
It’s as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.

What I find entirely ironic is the same people who berate these people for making a bad financial decision in the first place are the same ones that complain about them strategically defaulting. While also praising business that follow financially sound practices which often times include similar ethics. It’s empathizing with corporations over people.

I agree, this is a fascinating.

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

Excerpt:
It’s as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.

What I find entirely ironic is the same people who berate these people for making a bad financial decision in the first place are the same ones that complain about them strategically defaulting. While also praising business that follow financially sound practices which often times include similar ethics. It’s empathizing with corporations over people.

I agree, this is a fascinating.

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

Excerpt:
It’s as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.

What I find entirely ironic is the same people who berate these people for making a bad financial decision in the first place are the same ones that complain about them strategically defaulting. While also praising business that follow financially sound practices which often times include similar ethics. It’s empathizing with corporations over people.

I too love sociology and psychology. That’s what life is all about, I believe.

Here is the key:

Research shows that bankruptcies and foreclosures are “contagious.” People are less likely to think it’s immoral to walk away from their home if they know others who have done so. And if enough people do it, the stigma begins to erode.

The contagion will hit different areas differently. In speculative neighborhoods such as Downtown SD, people will walk away once they realize the prospects of making it whole are nil (it will happen in light-bulb moments for different homeowners at different times).

In more established neighborhood such as Hillcrest and Mission Hills, where there are few children, the peak buyers (and cash out refinance homeowners) will start walking when they realize that house appreciation will never return to peak levels in their lifetimes.

Let’s face it, peak home buyers in their 40s and 50s are unlikely to be bailed out by organic appreciation. In the mean time they are throwing good money after bad. Most folks retire in the 60s and once they do, they can’t afford large mortgages. Then they die in their 70s.

In neighborhoods such as Rancho Bernardo and Scripps Ranch, families with children are less likely to walk away because of social stigma, IF they are sill employed and can make the payments.

If unemployment continues for longer periods, they will be forced to default. Remember that in the past housing recessions always followed employment recessions.

This time, the housing recession caused the economic recession, which in turn caused unemployment which will then cause a follow-up housing recession.

Because housing markets are all connected, the neighborhoods that suffer less foreclosures will stagnate for longer.

I’ve said all along that peak purchases (and refinances) will get “recycled” or “purged” one way or another to equilibrium.

Social attitudes change. I know of several folks who walked away and I don’t view them any less because of their actions.

I too love sociology and psychology. That’s what life is all about, I believe.

Here is the key:

Research shows that bankruptcies and foreclosures are “contagious.” People are less likely to think it’s immoral to walk away from their home if they know others who have done so. And if enough people do it, the stigma begins to erode.

The contagion will hit different areas differently. In speculative neighborhoods such as Downtown SD, people will walk away once they realize the prospects of making it whole are nil (it will happen in light-bulb moments for different homeowners at different times).

In more established neighborhood such as Hillcrest and Mission Hills, where there are few children, the peak buyers (and cash out refinance homeowners) will start walking when they realize that house appreciation will never return to peak levels in their lifetimes.

Let’s face it, peak home buyers in their 40s and 50s are unlikely to be bailed out by organic appreciation. In the mean time they are throwing good money after bad. Most folks retire in the 60s and once they do, they can’t afford large mortgages. Then they die in their 70s.

In neighborhoods such as Rancho Bernardo and Scripps Ranch, families with children are less likely to walk away because of social stigma, IF they are sill employed and can make the payments.

If unemployment continues for longer periods, they will be forced to default. Remember that in the past housing recessions always followed employment recessions.

This time, the housing recession caused the economic recession, which in turn caused unemployment which will then cause a follow-up housing recession.

Because housing markets are all connected, the neighborhoods that suffer less foreclosures will stagnate for longer.

I’ve said all along that peak purchases (and refinances) will get “recycled” or “purged” one way or another to equilibrium.

Social attitudes change. I know of several folks who walked away and I don’t view them any less because of their actions.