American Distrust Towards Mortgage Lenders Remains says Survey

American’s trust in the financial system continues to increase but a lingering discontent towards mortgage lenders remains says the latest data from the Chicago Booth/Kellogg School Financial Trust Index.  Overall trust in the financial system has increased from 20 percent in January 2009 to 26 percent in December 2010.

The Chicago Booth/Kellogg School Financial Trust Index is a quarterly look at Americans’ trust in the nation’s financial system, measuring public opinion over three-month periods to track changes in attitude.  The latest issue looks at the period covering October through December 2010.

“The growing trust and optimism toward the financial system is consistent with a sense of economic recovery,” said Paola Sapienza, professor of finance at the Kellogg School of Management at Northwestern University. “According to our latest survey, factors driving this increase include more of a willingness to invest in the stock market and less fear of a drop. Plus, the Index shows that trust in banks has gained the most ground since the first issue of the Index — increasing by nearly 10 percentage points — demonstrating that the banking industry’s reputation is rebounding.”

The data also shows that even people morally opposed to strategic default said they would be more likely to default on their mortgage loan if they knew their lender or bank had been accused of predatory lending.  The survey found that 58 percent of homeowners said they now believed lenders would pursue those who default on their mortgage, versus 53 percent in September 2010. And, the increase was more apparent in recourse states.

“Interestingly, 48 percent of Americans said they would be more likely to default if their bank was accused of predatory lending, even if they’re morally opposed to strategic default. And, 11 percent said they’d be less likely to pay their mortgage and more likely to walk away from their loan if their bank or lender used false or faulty documentation in trying to foreclose,” said Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago Booth School of Business. “One likely reason for this may be related to a psychological notion of retribution — as if the homeowner is more likely to get back at their bank or lender for being dishonest in the first place.”

Homeowners are steadily gaining more confidence in the housing market and real estate prices compared to previous waves of data. For example, 54 percent of people surveyed this quarter forecast that prices will remain stable, a sharp increase over 46 percent in September 2010. Similarly, fewer respondents (22 percent) now believe that home values will decrease during the next 12 months (as compared to 31 percent three months ago).


“Lastly, the one area where we’ve continued to see a lack of confidence is in employment and job security,” said Sapienza. “People surveyed reported a 1 in 4 chance that they could lose their job in the next 12 months. This figure has remained constant over the full two years of the Financial Trust Index, which suggests that the growing optimism about the health of the economy has not yet trickled down to attitudes toward the job market.”

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