Recourse and Residential Mortgage Default: Theory and Evidence from U.S. States

Marianna Kudlyak and Andra Ghent
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Andra Ghent: Baruch College

No 33, 2010 Meeting Papers from Society for Economic Dynamics

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.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:33

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