The Social Life of Mortgage Delinquency and Default

Abstract

Although falling behind on a mortgage loan has significant personal consequences, we know little about whether the experience of delinquency or default influences the housing market behavior of other people in the defaulter's social networks. In this article, I ask how exposure to mortgage default through social networks affects perceptions of the housing market, judgments about the strategic default behavior of other households, and expectations for homeownership. Although individuals purposively draw on information from their social networks to aid in their housing search, theories of social influence have yet to be applied to the negative experience of mortgage delinquency or default. Drawing on the National Housing Survey, I find that individuals exposed to mortgage strain through their social networks express more negative expectations for the housing market and hold more permissive attitudes about strategic default. Homeowners reporting network exposure to mortgage strain are more likely to prefer rental housing when they next move. These results are strongest when individuals are connected to someone who has fallen behind on a mortgage payment in the previous three months.

Keywords

• Housing
• Social Networks
• Mortgage Default
• Social Influence
• Homeownership