Roots and Recourse Mortgages: Handing back the keys

Jorge Galan, Matías Lamas and Raquel Vegas

No 2203, Working Papers from Banco de España

Abstract: In this study we disentangle the effect of roots from other confounding factors to explain differences in immigrants’ outcomes in the mortgage market. Using loan-level data from the Spanish Credit Register complemented with data on securitized mortgages over a complete financial cycle, we identify that foreign-born borrowers with shallow roots to the host country pay higher mortgage rates at origination than similar debtors that are better-settled. We also find that weak roots are associated with higher default rates and with greater incentives to go into default in negative equity situations. Overall, we show that rootedness explains differential loan conditions at origination and default behavior in mortgages. From a policy perspective, our results have important implications for understanding the potential consequences of moving away from recourse mortgage regimes, and for the effectiveness of macroprudential policy.

Keywords: immigrants; mortgage terms; recourse mortgages; roots; strategic default. (search for similar items in EconPapers)
JEL-codes: C25 G21 J15 R20 R30 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-12
New Economics Papers: this item is included in nep-mig and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2203

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