Voluntary Mortgage Defaults: A Research Proposal
Suppose you buy a $100,000 house with $5000 down and a mortgage for the rest. Further suppose the housing market slumps, as it has, and the value of your house drops to $80,000. You now have a $95,000 debt secured by an $80,000 asset, which means that defaulting on the debt and forfeiting the house gives you a $15,000 gain at the cost of the lender. So it may be in your interest to default even if you could continue to pay.
This only works if you either are in a state where the lender's claim against you is limited to the house or if you have no other assets that a lender would find worth going after. My understanding—readers are invited to correct me if I am wrong—is that in some states the lender has a claim against other assets if you default, in others he does not.
If that is correct, it suggests a simple research project, designed to provide a rough estimate of the fraction of defaults that are, in the sense I have described, voluntary. Compare default rates in states where the lender can go after other assets to default rates in states where he cannot. Of course, the researcher would want to try to control, by the usual statistical measures, for other differences among states that might affect the chance of default.
Has anyone done such an analysis? If not, I offer it as a project for an ambitious scholar interested in a currently hot topic.