Word: defaulters
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...current approach focuses on whether or not homeowners can afford their monthly payments, and largely ignores the fact that some 20% of homeowners owe more than their house is worth - a situation known as negative equity, or being "underwater," which, according to the paper's findings, may itself trigger default...
When the shortfall amount in question was $100,000, the walk-away responses accelerated at a faster rate. Some 7% of people said they would intentionally default when a $100,000 shortfall represented less than 10% of their house's value. Once that shortfall represented between 50% and 60% of the home's value, an entire 25% of respondents said they would walk away. The hesitation to intentionally default when the theoretical amount of negative equity was $50,000, even when representing the same percentage of a home's value, may relate to the high fixed costs that come with...
...research also suggests that social cues can play a large role in deciding to walk away. The researchers found that even though 81% of people surveyed considered it immoral to intentionally default, those respondents who said they knew somebody who had were nearly twice as likely to say they themselves would. People who live in areas with high foreclosure rates were also more likely to say they'd be willing to walk away. "Once you see everyone else doing it, maybe the stigma goes down," says Sapienza. "It's also possible that there's a multiplication effect: if I know...
...upside is likely to be a reduction in the number of people who default on their student loans, a financial disaster that can destroy credit ratings and hike up interest rates on future loans. "In this economic recession, a lot of students are having a difficult time just paying for normal things like groceries or rent," says Carmen Berkley, president of the U.S. Student Association, an advocacy group. "This is really going to make sure that students are able to keep up with their loans and don't have to default. We want to be able to have good credit...
...they don't make the same claim about kids. Klinefelter says there's plenty of pent-up demand in the teen sector. Yes, teens aren't spending because of the recession, but that's also because retailers have failed to create a hot new trend. Denim has been the default teen look for the past few years, and nothing has knocked it off its perch. "Once the dominant new fashion trend emerges, teens will rush back out to the stores," says Klinefelter. "The resurgences will require some economic relief, but the segment will make a comeback...