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Pittsburgh, Penn. – UNC Center for Community Capital researcher Sarah Riley today shed light on how and under what circumstances low-income homeowners default on their mortgages at a national conference of urban scholars, researchers and public service professionals.

Riley joined a panel of experts for a panel discussion on “Mortgage Foreclosure and Access to Credit” at the Urban Affairs Association 2012 conference, being held April 18-21 in Pittsburgh.

Considerable public attention has been given to the issue of strategic defaults in recent years, Riley said. However, the strategic default behavior and attitudes of low-income borrowers have not been directly studied in the past. The issue is important because low-income households tend to have the highest overall default rates, and several lending and loan-modification programs target low-income borrowers. Their rates of default as well as the factors that drive them to strategic default are important to inform loan modifications programs to ensure they achieve optimal impact in reducing strategic default risk.

Riley’s research has revealed that:

  • Most low-income defaults are not strategic (only 4-9 percent are).
  • Low-income borrowers are less likely to default strategically. Rather, their defaults are driven more from liquidity constraints.
  • Beliefs about morality, house price dynamics (such as timing and location) negative equity debt burdens relative to income are principal drivers of strategic defaults.

“When compared to the general U.S. homeowner population, low-income homeowners have similar perceptions and beliefs about the morality and prevalence of strategic default,” Riley said.  “However, low-income borrowers are less likely than other borrowers to default strategically. Any loan modifications designed to reduce strategic default risk for low-income households should be targeted to minimize the negative-equity-debt burden relative to household income.:

Riley’s presentation is available at

Mortgage finance is a key area of study for the UNC Center for Community Capital, the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. Part of the College of Arts and Sciences at the University of North Carolina at Chapel Hill, the center offers data and analysis that helps policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people more effectively. For more information, visit or call (919) 843-2140.

Topics(s): Affordable Homeownership, Default, Bankruptcy, & Foreclosure
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