| Using a large national dataset of individual mortgage loans, we find that the social norms and moral barometers captured by local religious adherence, unionization rates, and racial composition influence a borrower's willingness to pay back his or her mortgage. Homeowners living in more religious areas are slightly less likely to enter mortgage foreclosure. Consistent with previous research, which finds that Hispanics are more accepting of strategic default, we find that individuals living in communities with higher fractions of Hispanic residents are more likely to enter foreclosure. Importantly, these effects are different for borrowers defaulting involuntarily due to liquidity constraints and borrowers likely defaulting voluntarily due to significant negative housing equity. For borrowers with lower levels of current housing equity (high original LTV and/or low home price appreciation), a higher level of religious adherence, a smaller Hispanic population fraction, and a higher rate of private unionization are all associated with a lower likelihood that a borrower will be in foreclosure. |
