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Recourse and the Residential Mortgage Market: the Case of Nevada

Author

Listed:
  • Wenli Li

    (Federal Reserve Bank of Philadelphia)

  • Florian Oswald

    (University College of London [London] (UCL))

Abstract

The state of Nevada passed a legislature in 2009 that abolished deficiency judgments for purchase mortgage loans made after October 1, 2009 and collateralized by primary single family homes. In this paper, we study lenders’ mortgage lending and households’ mortgage application and subsequent default decisions in response to the law change. Using unique mortgage loan level application and performance data, we find strong evidence that lenders tightened their lending standards. In particular, lenders reduced approval rates and loan sizes for affected mortgages after the implementation of the law. Households, by contrast, did not delay their mortgage applications till after the law change. Furthermore, the law change does not appear to have affected borrowers’ default decisions. These results thus cast a cautionary note on the effectiveness of policy recommendations that intend to use deficiency laws to curb mortgage defaults.

Suggested Citation

  • Wenli Li & Florian Oswald, 2014. "Recourse and the Residential Mortgage Market: the Case of Nevada," Sciences Po publications info:hdl:2441/4udtt6bh259, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/4udtt6bh25946auar877ii1c1e
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Deficiency judgment; Default; Foreclosure; Approval; Interest rate; Nevada;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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