Recourse and Residential Mortgages: The Case of Nevada

29 Pages Posted: 19 Aug 2015

See all articles by Wenli Li

Wenli Li

Federal Reserve Bank of Philadelphia

Florian Oswald

Institut d'Etudes Politiques de Paris (Sciences Po) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2014-12-01

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

JEL Classification: G21, K11, R20

Suggested Citation

Li, Wenli and Oswald, Florian, Recourse and Residential Mortgages: The Case of Nevada (2014-12-01). FRB of Philadelphia Working Paper No. 15-2, Available at SSRN: https://ssrn.com/abstract=2646093 or http://dx.doi.org/10.2139/ssrn.2646093

Wenli Li (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Florian Oswald

Institut d'Etudes Politiques de Paris (Sciences Po) - Department of Economics ( email )

28, rue des Saints peres
Paris, 75007
France

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