TY - JOUR
T1 - Recourse and residential mortgage default
T2 - Evidence from US states
AU - Ghent, Andra C.
AU - Kudlyak, Marianna
PY - 2011/9/1
Y1 - 2011/9/1
N2 - We quantify the effect of recourse on default and find that recourse affects default by lowering the borrower's sensitivity to negative equity. At the mean value of the default option for defaulted loans, borrowers are 30% more likely to default in non-recourse states. Furthermore, for homes appraised at $500,000 to $750,000, borrowers are twice as likely to default in non-recourse states. We also find that defaults are more likely to occur through a lender-friendly procedure, such as a deed in lieu, in states that allow deficiency judgments. We find no evidence that mortgage interest rates are lower in recourse states.
AB - We quantify the effect of recourse on default and find that recourse affects default by lowering the borrower's sensitivity to negative equity. At the mean value of the default option for defaulted loans, borrowers are 30% more likely to default in non-recourse states. Furthermore, for homes appraised at $500,000 to $750,000, borrowers are twice as likely to default in non-recourse states. We also find that defaults are more likely to occur through a lender-friendly procedure, such as a deed in lieu, in states that allow deficiency judgments. We find no evidence that mortgage interest rates are lower in recourse states.
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U2 - 10.1093/rfs/hhr055
DO - 10.1093/rfs/hhr055
M3 - Article
AN - SCOPUS:80051963685
SN - 0893-9454
VL - 24
SP - 3139
EP - 3186
JO - Review of Financial Studies
JF - Review of Financial Studies
IS - 9
ER -