Fewer Americans believe that borrowers who are not making their monthly mortgage payments are strategic defaulters, the most recent Chicago Booth/Kellogg School Financial Trust Index survey found.
The March survey found that 30% of respondents believe borrowers are not paying because of a strategic default strategy, down from 37% in the December 2010 survey.
"This is the actual number of defaults in the eyes of the neighbors. It is obtained as the ratio of the number of people you know who defaulted even if they could afford to pay the mortgage and the total number of people you know have defaulted," explained co-author Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago Booth School of Business.
“This change might be due to the increase in the perceived probability that a lender will go after a strategic defaulter,” said survey co-author Paola Sapienza, professor of finance at the Kellogg School of Management at Northwestern University.
Almost half of the respondents believe homeowners are electing not to pay their mortgage because of unemployment or underemployment, while 35% believe this group "overborrowed."
Nearly all of the respondents believe banks that tried to foreclose using false or faulty documentation should be fined, with more than half preferring the money be given to struggling homeowners. But these bank fines should not be used to help owners who overborrowed, the respondents stated.
“People are sympathetic to the plight of the American homeowner—on why homeowners are struggling to pay their mortgages and why they would choose to walk away from their loan. Our report indicates that Americans believe accountability lies with lenders and financial institutions,” said Sapienza.
The number of respondents who believe home prices will increase in their area increased to 30% from 24% in the December survey. But in a contradictory finding, fewer people believe prices will remain stable in their locale, 45% compared with 54%.
“Real estate has not seen a big turnaround yet,” said Zingales. “The sluggish housing market is a possible factor in creating this polarization.”
Americans’ overall trust in the financial system is at just 20%, levels last seen during the earliest months of the financial meltdown, December 2008 and March 2009.
