Abstract

http://ssrn.com/abstract=1432437
 
 

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


Andra C. Ghent


Arizona State University (ASU) - Finance Department

Marianna Kudlyak


Federal Reserve Banks - Federal Reserve Bank of Richmond

February 25, 2011

Review of Financial Studies
Federal Reserve Bank of Richmond Working Paper No. 09-10R

Abstract:     
We quantify the effect of recourse on default. We find that recourse affects default through 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; for homes appraised at $500,000 to $750,000, borrowers are twice as likely to default in non-recourse states. 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. We find no evidence that mortgage interest rates are lower in recourse states.

Number of Pages in PDF File: 63

Keywords: Deficiency Judgment, Foreclosure, Negative Equity, Residential Mortgage Default, Recourse

JEL Classification: E44, G21, G28, K11, R20

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Date posted: July 11, 2009 ; Last revised: November 24, 2011

Suggested Citation

Ghent, Andra C. and Kudlyak, Marianna, Recourse and Residential Mortgage Default: Evidence from U.S. States (February 25, 2011). Federal Reserve Bank of Richmond Working Paper No. 09-10R. Available at SSRN: http://ssrn.com/abstract=1432437 or http://dx.doi.org/10.2139/ssrn.1432437

Contact Information

Andra C. Ghent (Contact Author)
Arizona State University (ASU) - Finance Department ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
HOME PAGE: http://www.public.asu.edu/~aghent/
Marianna Kudlyak
Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )
P.O. Box 27622
Richmond, VA 23261
United States
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