Financial Trust Index

Trust in Stock Market Stabilizes; Consumers Set Sights on Credit Unions, Community Banks while Cooling Off Demand for Government Intervention

Wave IV Results

Of those surveyed, 21 percent of Americans trust the financial system. The greatest level of trust is for banks (34 percent), with the lowest for large corporations (13 percent).

October 19, 2009 – Trust in America’s financial system continues to edge upward according to the latest quarterly findings in the Chicago Booth/Kellogg School Financial Trust Index. According to the report published today, the Financial Trust Index has increased slightly from 21 percent to 22 percent for the period from July to September 2009.

Most notably, the researchers attributed the positive trend to increased confidence in mutual funds and large corporations, and an overall stable view of the stock market.

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 and to provide a better understanding of public trust. Co-authors Paola Sapienza (Kellogg School of Management at Northwestern University) and Luigi Zingales (University of Chicago Booth School of Business) published today’s report as the fourth quarterly update since the inaugural findings were issued in January 2009. Sapienza and Zingales analyzed data from more than 1,000 American households, randomly chosen and surveyed via phone during two weeks in late September 2009.

WHEN HOMEOWNERS WALK AWAY: NEW RESEARCH REVEALS MORE THAN 25 PERCENT OF MORTGAGE LOAN DEFAULTS ARE STRATEGIC

June 25, 2009—While the Obama administration’s housing policy has been largely influenced by a study of the Boston housing market during the 1990-91 recession in which homes devalued by approximately 10 percent, new research suggests that a novel phenomenon is at hand in the fallout of today’s more severe housing crisis – strategic default on mortgage loans. Given that homes in numerous parts of the country have lost more than 30 to 40 percent of their value, many homeowners say they would simply walk away from their loans – without fear of repercussion.

The inaugural work of the Financial Trust Index Working Paper Series, “Moral and Social Restraints to Strategic Default on Mortgages,” looks at American homeowners’ propensity to default when the value of a mortgage exceeds the value of their house, even if they can afford to pay their mortgage. By using new survey data, the paper estimates that more than a quarter of defaults on mortgage loans are strategic, especially when home values have fallen by more than 15 percent. This paper is the first to examine the economic and moral implications of strategic default in the current recession.