A study by the National Bureau of Economic Research conducted by Christopher Mayer of Columbia University seems to indicate that when homeowners are offered a program for mortgage modification and requires default in order to participate, then homeowners are going to strategically default in order to get the benefit from the program if their mortgages are underwater.
The study is based on a program announced by Countrywide to modify the loans of certain sub-prime mortgages. The study shows that Countrywide experienced a 13% jump in its monthly delinquency rate when the loan modification program was announced.
The program came up as a result of the 2008 agreement by Countrywide to modify the loans of certain seriously delinquent subprime homeowners. Delinquency increased most among the people who statistically were least likely to default, individuals who had the liquidity to continue to pay.
The study concludes that strategic default behavior should be considered in designing requirements for participation in loan modification programs.