Recourse and residential mortgage default: theory and evidence from U.S. states

Andra C. Ghent () and Marianna Kudlyak

No 09-10, Working Paper from Federal Reserve Bank of Richmond

Abstract: We 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.

Keywords: Mortgage; loans (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg and nep-ure
Date: 2009
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