The “moral hazard” that keeps many Americans from defaulting on their mortgage loans is being turned upside down as a survey found that nearly half said if their lender was accused of predatory practices they would have no qualms about not paying, even if they were morally opposed to strategic defaults.
This is the case even as the number of homeowners who believed lenders would pursue those who defaulted on their loans increased by five percentage points between September 2010 and now to 58%, according to the Chicago Booth/Kellogg School Financial Trust Index.
Commenting on the findings, Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago Booth School of Business and co-author of the study, said that besides the 48% who said they would be more likely to default if their bank was accused of predatory lending, there were 11% who said they'd be less likely to pay their mortgage and more likely to walk away from their loan if their lender used false or faulty documentation in trying to foreclose.
"One likely reason for this may be related to a psychological notion of retribution—as if the homeowner is more likely to get back at their bank or lender for being dishonest in the first place," he said.
On the good news side, the number of survey respondents who felt housing prices would remain stable increased from 46% last September to 54% now. Meanwhile those who believe home prices will drop in the next 12 months fell from 31% in September to 22% now.
