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A Quarter of Homeowners Intentionally Default on Mortgages, According to Study

Posted on July 21 By Francine Huff

Just as I've long suspected, many homeowners who are defaulting on their mortgage loans are doing so on purpose. According to a study by Northwestern University’s Kellogg School of Management and the University of Chicago’s Booth School of Business, 26% of existing mortgage defaults are strategic.

About 22% of U.S. households have negative home equity, according to Zillow.com, an online real estate service. Many people who strategically default, or skip mortgage payments even though they can afford them, are doing so because they have negative equity in their homes. The study found that even if they could afford mortgage payments, 17% of people polled would default if the equity shortfall is 50% of their home's value. No households indicated they would default if the equity shortfall were less than 10%.

Apparently people who believe that it is immoral to default on a mortgage loan are less likely to do so. The poll found that people who view it as immoral are 77% less likely to default on a home loan. People who know someone who has already defaulted strategically are 82% more likely to say they are willing to default themselves.

Less than 20% of folks polled felt it was morally acceptable to walk away from a house when they could afford to pay the mortgage. However, 9% of homeowners said they would walk away if they had an equity shortfall of $50,000, 26% would with a shortfall of $100,000 and 41% would with a shortfall of $200,000.

The poll also found that certain demographic groups are more likely to think strategically defaulting is OK. People under 35 were less likely to think it was wrong to default, followed by folks over 65. African-Americans, people who are more educated and wealthy individuals were more likely to believe that defaulting is morally wrong.

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows. Visit her Web sites, www.Huffwrites.com and http://supersavvyspender.blogspot.com/.

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