Altering the Perceived Morality of Strategic Mortgage Forbearance: A Test of the Disjunctive Theory

This study examines whether the perceived morality of strategic mortgage forbearance can be altered by reframing the decision through the lens of the disjunctive thesis. Using an experiment with current or former U.S. homeowners, we study both borrowers’ willingness to pay for the option to forbear and the moral evaluation of doing so when forbearance is not financially necessary. We find that respondents place positive value on the option to delay mortgage payments. In fact, their willingness to pay increases with both the size of the deferred payment and the duration of forbearance and is even higher among participants with prior forbearance experience. More importantly, moral judgments depend primarily on whether the borrower pays anything at all for the right to forbear. Costless forbearance is viewed as significantly less moral, whereas introducing any positive price materially increases perceived moral acceptability; larger prices provide little additional effect. We also find that greater financial literacy is associated with lower willingness to pay, while prior default and, in some specifications, prior forbearance are associated with more favorable moral evaluations. Overall, the results suggest that even a small fee can recast forbearance from a moral question into a business decision, which has strong implications for mortgage design and disaster-relief policy efforts.