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Recourse and residential mortgages: the case of Nevada

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  • Wenli Li
  • Florian Oswald

Abstract

The state of Nevada passed legislation 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 how the law change affected lenders? decisions to grant mortgages and borrowers? decisions to apply for them and subsequently default. Using unique mortgage loan-level application and performance data, we find strong evidence that lenders tightened their lending standards for mortgages affected by the new legislation. In particular, lenders reduced approval rates and loan sizes for mortgages after implementation of the law. Borrowers, by contrast, did not delay their mortgage applications until after the law change. Furthermore, the law change did not appear to have affected borrowers? default decisions. These results 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 residential mortgages: the case of Nevada," Working Papers 15-2, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:15-2
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    References listed on IDEAS

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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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