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"The Contagion Effect of Neighboring Foreclosures on Own Foreclosures" Charles Towe*

Summary: "The Contagion Effect of Neighboring Foreclosures on Own Foreclosures"
Charles Towe*
and Chad Lawley
December 2010
Assistant Professor, Department of Agricultural and Resource Economics and the National Center for Smart
Growth, University of Maryland, College Park, MD (contact author ctowe@arec.umd.edu)

Assistant Professor, Department of Agribusiness and Agricultural Economics, University of Manitoba, Winnipeg,
MB, Canada
There is no question that the US has endured a dramatic period of foreclosure activity
unlike any period in recent decades. National foreclosure starts increased from 1.5 million in
2007 to 2.8 million in 2009, and the share of mortgage loans that were seriously delinquent
reached 5.2% by the third quarter of 2008, compared to the 1979-2006 average of 1.7% and the
previous high of 2.7% in 2002 (Mayer, Pence, and Sherlund 2009). This period of increased
foreclosure activity has introduced new phrases to the public lexicon, most notably for this work,
the notion of "strategic default," which occurs when those who can afford to pay make the
strategic choice to walk away from their mortgage. Strategic defaults are estimated to make up
as much as one-quarter of all foreclosures (Guiso, Sapienza, and Zingales 2009) and anecdotal


Source: Anisimov, Mikhail - Institute for Physical Science and Technology & Department of Chemical Engineering and Biomolecular Engineering, University of Maryland at College Park


Collections: Physics; Materials Science