When the housing bubble that precipitated the Great Recession burst, millions of homeowners saw their primary nestegg, housing equity, depleted. The rise in the number of “underwater” homeowners occasioned a flurry of scholarly and media attention centering on the question of whether these homeowners would (and should) default on their mortgages to maximize net wealth. The ensuing debates about the so-called “strategic defaulters” (defaulters who could have paid their mortgage but chose not to) proceeded along two stylized fronts: homeowners should walk away from their homes because doing so is in their financial interest; or, homeowners should not walk away from their homes because it would be immoral to fail to repay debts owed. These two positions correspond to option theories of mortgage default in real estate finance and theories of the non-contractual bases of contracts in sociology, respectively. Drawing on interviews with underwater homeowners in a state with minimal legal liability for mortgage default, I argue that existing theory cannot adequately account the relatively small amount of observed strategic defaults.

Observed rates of strategic default are much lower than option theory would predict, suggesting that negative equity is an insufficient motivator of default. Moreover, homeowners were also not overly concerned with their contractual obligation to the lender, a central preoccupation in this debate.  Instead, drawing on literature from cultural and economic sociology, I argue that homeowners did not default as ruthlessly as expected because a) paying the mortgage was inextricably linked to a variety of social relationships among neighbors, family members, and institutions such as schools that would be compromised by default, and b) homeowners valued their homes above and beyond their current market value. I elaborate this latter point by introducing the concept of a “meaning premium,” or the premium homeowners give to what they perceive to be the uniqueness of their particular home.

I conclude by discussing the implications of my findings for policy. Namely, that lenders have little incentive to modify underwater mortgages since rates of strategic default are quite low. In other words, it is a safe bet for lenders to assume that solvent but underwater homeowners will continue paying their mortgages, despite the potential benefits of strategic default (i.e., concerns about moral hazard are overblown). Additionally, this paper suggests that for most American homeowners home ownership is not simply a wealth-building exercise. As such, policies encouraging home ownership should consider that homeowners may be quite insensitive to the financial benefits of home ownership in the short-run, attending instead to the nonpecuniary benefits of home ownership such as attachment to place, the social standing home ownership may confer, the expressive value of home improvement projects, and the central role of the single-family home in American conceptions of family.