Recourse and residential mortgages: the case of Nevada

Wenli Li and Florian Oswald

No 15-2, Working Papers from Federal Reserve Bank of Philadelphia

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.

Keywords: Deficiency judgment; Default; Foreclosure; Approval; Interest rate; Nevada (search for similar items in EconPapers)
JEL-codes: G21 K11 R20 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-12-01
New Economics Papers: this item is included in nep-law and nep-ure
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