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ODU's Seiler to Address Housing Slump, Foreclosure Crisis on WHRO-TV's 'What Matters' Dec. 17

Old Dominion University's Michael Seiler, professor of finance and Robert M. Stanton Chair of Real Estate and Economic Development, will be a guest on the WHRO-TV show "What Matters" on Friday, Dec. 17.

The local current affairs show, hosted by Cathy Lewis, will be broadcast on WHRO (Channel 15 in Hampton Roads) at 8:30 p.m.

Seiler was on a panel with two other guests who work in the real estate industry - a representative from the Hampton Roads Realtors' Association and a financial consultant with Bunting Capital. The trio of experts, who were taped earlier, address the recent housing slump, the foreclosure crisis and its cascading effect on the economy.

Seiler recently co-authored a paper with Andy Collins, an assistant professor at ODU's Virginia Modeling, Analysis and Simulation Center, looking at the issue of homeowners making the strategic decision to walk away from their mortgage.

He said the fast, far-ranging discussion with the other experts includes discussion about the state of the mortgage industry, how it affects the economy as a whole, and possible uses of the VMASC foreclosure contagion model Seiler and Collins designed as a predictive tool for the entire housing market.

In doing their research, they used a model of 2,500 homes to try to predict how a flurry of homeowners defaulting on their mortgage would affect other homeowners who have not defaulted.

"The further and further underwater you get, the more it might make financial sense to walk away. The ultimate choice is a tradeoff between moral values and economics," Seiler said.

The model, built by master's student Marshall Gangel, suggests that the best course of action for a community troubled by mortgage defaults is to speed up the foreclosure process.

"The neighbor who is paying the mortgage finds out about their neighbor who isn't, and it creates something called the moral hazard problem," Seiler said. "The paying neighbor asks himself why he should continue paying his mortgage when his neighbor stopped paying a year ago and nothing bad has happened to him. It creates an incentive for people to do a bad behavior, one that's harmful to others in the market. This problem is quickly getting out of control and someone needs to step in."

The agent-based model was set up so that each of the 2,500 homes in the model would have its own set of rules - some would be in a more precarious financial situation than others, and some would feature owners more willing to keep paying a mortgage at all cost.

"You program the model at the micro level and let it run, and what you get are 'emergent behaviors.' Does the market collapse? Does it drop 25 percent? Is it able to recover?" Seiler said.

Seiler recently returned from presenting the paper, "Exploring the Foreclosure Contagion Effect Using Agent-based Modeling," at the Massachusetts Institute of Technology. He's excited to extend this work to examine the "strategic foreclosure contagion effect" - meaning, the effect a foreclosure has on homeowners who might be able to meet their mortgage payments, but choose not to.

This article was posted on: December 15, 2010

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