More punishment, less default?
The extent of lender recourse following contractual default varies greatly across economies. Intuitively, one would expect these differences to matter for default behavior at the micro-economic level and for equilibrium quantities. The objective of this paper is to study an equilibrium model in the spirit of Dubey et al. (Econometrica 73(1):1–37, 2005 ) where the implications of recourse for default patterns can be characterized. Under plausible conditions, broader recourse causes yields at origination and default rates to fall for a given set of observable borrower characteristics. On the other hand, the effect of broader recourse on average default rates and the quantity of loans issued is deeply ambiguous because the composition of the pool of borrowers can change. Raising the fraction of assets subject to recourse can well increase equilibrium default rates. I discuss the implications of these results for how one should test empirically whether recourse statutes matter for loss severity rates and the frequency of default in secured loan markets. Copyright Springer-Verlag 2012
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 8 (2012)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/finance/journal/10436/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Don Schlagenhauf & Carlos Garriga, 2009. "The Design of Foreclosure Punishments: You Just Cannot Walk Away!," 2009 Meeting Papers 396, Society for Economic Dynamics.
- Terrence M. Clauretie, 1987. "The Impact of Interstate Foreclosure Cost Differences and the Value of Mortgages on Default Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 152-167.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007.
"A quantitative theory of unsecured consumer credit with risk of default,"
07-16, Federal Reserve Bank of Philadelphia.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Centro de Altisimos Estudios Rios Pe©rez(CAERP) 2, Centro de Altisimos Estudios Rios Perez (CAERP).
- Kau James B. & Keenan Donald C. & Kim Taewon, 1994. "Default Probabilities for Mortgages," Journal of Urban Economics, Elsevier, vol. 35(3), pages 278-296, May.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Ambrose, Brent W & Capone, Charles A, Jr & Deng, Yongheng, 2001. "Optimal Put Exercise: An Empirical Examination of Conditions for Mortgage Foreclosure," The Journal of Real Estate Finance and Economics, Springer, vol. 23(2), pages 213-234, September.
- Kiyotaki, Nobuhiro & Moore, John, 1997.
Journal of Political Economy,
University of Chicago Press, vol. 105(2), pages 211-248, April.
- Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
- Ryo Kato, 2003. "Matlab code for Kiyotaki-Moore credit cycles," QM&RBC Codes 113, Quantitative Macroeconomics & Real Business Cycles.
- John Moore & Nobuhiro Kiyotaki, "undated". "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
- Andra C. Ghent & Marianna Kudlyak, 2010. "Recourse and residential mortgage default: theory and evidence from U.S. states," Working Paper 09-10, Federal Reserve Bank of Richmond.
- Burcu Duygan-Bump & Charles Grant, 2009. "Household debt repayment behaviour: what role do institutions play?," Economic Policy, CEPR;CES;MSH, vol. 24, pages 107-140, 01.
- Jones, Lawrence D, 1993. "Deficiency Judgments and the Exercise of the Default Option in Home Mortgage Loans," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 115-138, April.
- Chatterjee, Satyajit & Eyigungor, Burcu, 2009. "Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy," Working Papers 09-22, Federal Reserve Bank of Philadelphia.
When requesting a correction, please mention this item's handle: RePEc:kap:annfin:v:8:y:2012:i:4:p:427-454. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.