Monday, June 29, 2009

I am surprised the rate is so low

Luigi Guiso, Paola Sapienza and Luigi Zingales find in a working paper that once the value of a family's house falls to below 50 percent of its mortgage balance, the default rate rises to 17 percent, even among those who can afford to make payments. This to me shows how un-ruthless people are about default--about how responsible they feel to make their payments.

(ht to Leigh Ann Coates for pointing out the paper to me).

7 comments:

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Anonymous said...

I think instead that in non-recourse states only idiots fail to exercise what is in effect a put option that they have paid for, and that has been sold by the lender with wide open eyes, in full knowledge of what they were doing.

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This to me shows how un-ruthless people are about default--about how responsible they feel to make their payments.

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