REDUCING MORTGAGE DEFAULT RATES: SUGGESTED STRATEGIES

Tracy L. Washington
Lincoln Memorial University

ABSTRACT

In 2007, approximately 20% of U.S. homeowners with a subprime mortgage loan
experienced mortgage default, which resulted in the bank foreclosing on their home. The purpose
of this study is to explore strategies that bank managers and lenders used to reduce mortgage
default rates. The conceptual framework for this study included elements from Berle and Means’
agency theory and Donaldson’s stewardship theory. Potential homeowners may experience lower
mortgage defaults if they have a clear and concise communication, better understanding of the
various types of mortgage loans, especially subprime loans, and the review of the mortgage
lending process. This study also provides strategies that will enable both lenders and borrowers to
minimize mortgage default rates and to provide information to future homeowners seeking to
obtain a mortgage loan.
Keywords: Prime mortgage, subprime mortgage, foreclose, case study, research methodology