Recourse and residential mortgage default: theory and evidence from U.S. states
AbstractWe analyze the impact of lender recourse on mortgage defaults theoretically and empirically across U.S. states. We study the effect of state laws regarding deficiency judgments in a model where lenders can use the threat of a deficiency judgment to deter default or to shorten the default process. Empirically, we find that recourse decreases the probability of default when there is a substantial likelihood that a borrower has negative home equity. We also find that, in states that allow deficiency judgments, defaults are more likely to occur through a lender-friendly procedure, such as a deed in lieu of foreclosure.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 09-10.
Date of creation: 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-22 (All new papers)
- NEP-RMG-2009-08-22 (Risk Management)
- NEP-URE-2009-08-22 (Urban & Real Estate Economics)
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