Recourse and Residential Mortgages: The Case of Nevada

Li, Wenli; Oswald, Florian

doi:10.2139/ssrn.2553444

Cited by 7 publications

(6 citation statements)

References 16 publications

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“…With stricter foreclosure laws, borrowers undoubtedly have a lower individual propensity to default for a given level of debt, but banks respond by expanding the supply of credit, which may increase the amount of debt in the economy. Empirically, although Hurst, Keys, Seru and Vavra (2016) find substantial mortgage market redistribution across regions that could mute the impact of state-specific laws, Li and Oswald (2017) show that legislation passed in Nevada in 2009 that abolished deficiency judgments led to a contraction in credit. In terms of macroeconomic impact, Hedlund (2016) finds that recourse laws induce greater caution among buyers when purchasing and financing houses, which reduces the volatility of house prices.…”

Section: Foreclosure Externalitiesmentioning

confidence: 98%

Crises in the Housing Market: Causes, Consequences, and Policy Lessons

Garriga¹,

Hedlund²

2019

Oxford Research Encyclopedia of Economics and Finance

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The global financial crisis of 2007–2009 helped usher in a stronger consensus about the central role that housing plays in shaping economic activity, particularly during large boom and bust episodes. The latest research regards the causes, consequences, and policy implications of housing crises with a broad focus that includes empirical and structural analysis, insights from the 2000s experience in the United States, and perspectives from around the globe. Even with the significant degree of heterogeneity in legal environments, institutions, and economic fundamentals over time and across countries, several common themes emerge. Research indicates that fundamentals such as productivity, income, and demographics play an important role in generating sustained movements in house prices. While these forces can also contribute to boom-bust episodes, periods of large house price swings often reflect an evolving housing premium caused by financial innovation and shifts in expectations, which are in turn amplified by changes to the liquidity of homes. Regarding credit, the latest evidence indicates that expansions in lending to marginal borrowers via the subprime market may not be entirely to blame for the run-up in mortgage debt and prices that preceded the 2007–2009 financial crisis. Instead, the expansion in credit manifested by lower mortgage rates was broad-based and caused borrowers across a wide range of incomes and credit scores to dramatically increase their mortgage debt. To whatever extent changing beliefs about future housing appreciation may have contributed to higher realized house price growth in the 2000s, it appears that neither borrowers nor lenders anticipated the subsequent collapse in house prices. However, expectations about future credit conditions—including the prospect of rising interest rates—may have contributed to the downturn. For macroeconomists and those otherwise interested in the broader economic implications of the housing market, a growing body of evidence combining micro data and structural modeling finds that large swings in house prices can produce large disruptions to consumption, the labor market, and output. Central to this transmission is the composition of household balance sheets—not just the amount of net worth, but also how that net worth is allocated between short term liquid assets, illiquid housing wealth, and long-term defaultable mortgage debt. By shaping the incentive to default, foreclosure laws have a profound ex-ante effect on the supply of credit as well as on the ex-post economic response to large shocks that affect households’ degree of financial distress. On the policy front, research finds mixed results for some of the crisis-related interventions implemented in the U.S. while providing guidance for future measures should another housing bust of similar or greater magnitude reoccur. Lessons are also provided for the development of macroprudential policy aimed at preventing such a future crisis without unduly constraining economic performance in good times.

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Section: Foreclosure Externalitiesmentioning

confidence: 98%

Crises in the Housing Market: Causes, Consequences, and Policy Lessons

Garriga¹,

Hedlund²

2019

Oxford Research Encyclopedia of Economics and Finance

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“…The researches conducted by Ghent and Kudlyak (2011), Li and Oswald (2017) and Stanga, Vlahu and de Haan (2017) confirm that the decision not to repay mortgage loans largely depends on whether borrowers have an obligation to settle the difference between the remaining debt related to loans and the value of pledged real estate.…”

Section: Impact Of Real Estate Market Crashes On Financial Stabilitymentioning

confidence: 99%

The Role of Macroprudential Policy in Bank Housing Loans Portfolio Quality Assurance

Mitrašević

2021

Economic Themes

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The subject of this paper is the contemporary trend in residential real estate markets in European countries and their impact on the quality of banks’ housing loan portfolios. Due to the fact that these are the markets that still have not fully recovered from the previous financial crisis, and at the time of writing were exposed to significant uncertainty related to the effects of specific business conditions caused by COVID-19, the research on the risks related to these markets and tools which can mitigate their consequences are of paramount importance. Given the fact that the importance of monitoring the emergence of systemic risks in the financial system and the design of macroprudential tools for Bosnia and Herzegovina is yet to come, one of the aims of the paper is to present the results of the research on the effectiveness of certain macroprudential policy measures for mitigating the impact of price fluctuations in residential real estate markets. A special attention is paid to the challenges that the real estate market and mortgage loans have been facing during the crisis caused by the COVID-19 pandemic. The paper provides a basis for future researches examining to which extent the applied macroprudential policy measures in some countries have been effective in hitherto unprecedented business conditions

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“…Curtis (2014) finds that lender-friendly foreclosure is associated with an increase in subprime originations, but has less effect on the prime market. Li and Oswald (2017) leverage on the abolition of deficiency judgements in the State of Nevada in 2009 and find that it led to a decline in equilibrium loan sizes and approval rates. Some other papers have studied the effect of limited liability on loan rates and housing prices.…”

Section: Introductionmentioning

confidence: 98%