Collateral Enforcement and Strategic Behavior : Evidence from a Foreclosure Moratorium in Greece

We exploit the introduction of a foreclosure moratorium and a debt-discharge process in Greece that mitigate the repossession risk of primary residence mortgages to separate strategic from non-strategic delinquencies. We find that 37\% of delinquencies in our sample are strategic and document considerable heterogeneity in strategic behavior among homeowners. Despite the bank's inability to repossess the house, only 22\% of borrowers who are able to pay stop servicing their mortgage. Our results provide evidence that factors beyond collateral enforcement and pecuniary costs---borrower sophistication, prior engagement in moral hazard, banking relationships, and liquidity preference---play an important role in strategic behavior