A recent study suggests that most homeowners have qualms about abandoning a mortgage that they can afford to pay, even if it straps them to an investment that’s unlikely to pay off anytime soon.But if the house has lost significant value, or if many neighbors walk away from their mortgages, the study says, “strategic defaults” are significantly more likely.It is an increasingly common question facing homeowners, many of whom have seen their properties lose large amounts of equity in recent years: would you give up a home that is considered to be “underwater” even if you could still afford the monthly payments?Three academic researchers posed that question this year in a telephone survey of about 1,000 homeowners nationwide and found that when a mortgage exceeds the home’s value by less than 10 percent, strategic defaults are rarely considered. But if the home’s value dropped to half of the mortgage amount, 17 percent would abandon the loan.“The fact that there is a price for morality is kind of obvious, in a sense,” said Luigi Guiso, a researcher with the European University Institute in Fiesole, Italy, who, along with American researchers at Northwestern University and the University of Chicago, completed the survey in March. “What we did not know was how big of a price it would be.”
By Bob Tedeschi, Oct 25,2009 NYT

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