When To Give Up Your Home To The Bank

Tens of thousands of people remain in homes that are underwater, that is, their mortgage is more than their home is worth. They're drowning. Yet they stay. Why?

It depends on how much people owe versus how much the home is worth.

The Los Angeles Times reports:

But research by three academics suggests that the willingness of people to default depends largely on just how far underwater they are. Or, as the study's authors put it, "People default because of the size of their negative equity, not just because they cannot afford to pay."

When the difference between what they owe and what their homes are worth is less than 10%, the researchers found that not one of the 1,000 U.S. households sampled said they would walk away.

And when the shortfall is between 10% and 20% of their home's value, Luigi Zingales of the University of Chicago, Paola Sapienza of Northwestern University and Luigi Guiso of the European University Institute found that just 5% of the owners they sampled would quit. Even when the difference reaches 50%, only 17% said they would throw in the towel.