Non-recourse mortgage law and housing speculation
Tong-yob Nam and
Journal of Banking & Finance, 2021, vol. 133, issue C
Borrowers in states with non-recourse mortgage law face limited liability on their mortgage loans. Using a regression discontinuity design at state borders, we show that non-recourse law causes greater increase in housing prices during the U.S. housing boom in the 2000s by encouraging speculative investment demands. Non-recourse states experience greater investment-purpose housing purchases with highly leveraged mortgages during the boom period 2004–2006. We find that the emergence of the originate-to-distribute model enables lenders to effectively shift risk to other investors, thereby promoting excessive loan originations and amplifying the housing price increase in non-recourse states during a boom period.
Keywords: Non-recourse mortgage law; Limited liability; Housing speculation; State border discontinuity; Originate-to-distribute (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 K11 R30 R31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s037842662100248x
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