Recourse and Residential Mortgages: The Case of Nevada

Wenli Li , Florian Oswald (1)

1 ECON - Département d'économie (Sciences Po)

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 this change in the law affected equilibrium mortgage lending. Using unique mortgage loan-level application data and a difference-in-differences approach that exploits the qualification criterion, we find that the law change led to a decline in equilibrium loan sizes of about 1 to 2 percent. There exists some evidence that mortgage approval rates also decreased for the affected loan applications. These results suggest that making the deficiency judgment law more default friendly in Nevada generated material cost on borrowers at the time of mortgage origination.

Keywords: Deficiency judgment; Default; Foreclosure; Approval; Interest rate; Nevada

Domains: Humanities and Social Sciences; Economics and Finance

Wenli Li, Florian Oswald. Recourse and Residential Mortgages: The Case of Nevada. Journal of Urban Economics, 2017, 101, pp.1 - 13. ⟨10.1016/j.jue.2017.05.004⟩. ⟨hal-03391958⟩