Tag: nonrecourse

  • Getting Rid of Nonrecourse Mortgages?

    Posted by

    Adam Levitin

    It's interesting to look at some of the reader comments to the NY Times article about the rich being more likely to default on their mortgages.  A lot of them are aghast that a mortgage might not be full recourse–that one can walk away and have no personal liability.  What happened to one's word being their bond, honor, etc?  

    Since the onset of the mortgage crisis, some commentators (starting with Martin Feldstein in 2008) have been discovering to their horror that a lot of mortgage lending is nonrecourse.  They think this situation is an invitation to moral hazard and argue that we should do away with nonrecourse mortgages and otherwise punish strategic defaulters (without ever saying how we identify a strategic default–not everyone who walks away from an underwater property is a strategic defaulter…)  Putting aside the issue that a lot of mortgages are recourse, I don't think these commentators have fully thought through the implications of doing so.  

    (more…)

  • The Role of Recourse in Foreclosures

    Posted by

    Adam Levitin

    Martin Feldstein has been pushing a mortgage bailout proposal that has been getting some undeserved attention (see here and here, e.g.).  Feldstein gets  (here, and here)
    how central negative equity is to the economic crisis.  Homeowners with
    negative equity have a reduced incentive to stay in their home if the
    mortgage is burdensome.  Negative equity fuels foreclosures, which in
    turn force down housing prices, setting off a downward spiral.
    Feldstein is right to focus on negative equity as a key issue for
    housing market stabilization. The problem is in his solution–it is based on a few erroneous factual premises, all of which could have been discovered with very limited Google searches. 

    (more…)