| There's Fed Reserve research on this. The only thing recourse does is make borrowers a bit less sensitive to negative equity and only for high value homes: "Importantly, recourse affects default only through lowering borrowers sensitivity to negative equity. Unconditionally, there is no difference between the default rates in recourse and non-recourse states." "The effect of recourse is significant only for higher-appraised properties." > Credit standards and interest rates will be different on non-recourse loans "To the extent that borrowers in recourse states are less likely to default in response to negative equity, and are more likely to default in a lender-friendly way if they do default, lenders are likely to face smaller losses from default in recourse states. Thus, one might expect interest rates to be lower in recourse states. However, we find no evidence that they are; in fact, we find that loans are more expensive in recourse states." You can read the paper for yourself: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1432437. Note that this paper (and many other sources) classify Texas as recourse but it is not. I'm not certain why that is. Many recourse states require the bank to credit you the full appraised value, not the actual foreclosure sale value - because banks often bid against themselves at foreclosure auctions and control bid acceptance so they effectively set the foreclosure price. Various things (wages, personal property, retirement accounts) are often excluded from recourse for your primary home. In some states like Minnesota a jury must determine the fair market value of a foreclosed home. Other states have strict requirements (like short filing deadlines) or lengthy procedures (all attorney billable hours!). This effectively makes non-foreclosure options way more popular - where a bank will ofter to take the deed and cancel the debt. In the end it is more cost-effective for the bank and better for the borrower. Furthermore even if you get a deficiency judgement the old proverb "You can't squeeze blood from a stone" applies. Someone who can't pay their mortgage is unlikely to have significant assets to draw on. All you get for your trouble is a bankruptcy filing from the borrower. After all that time and trouble your deficiency judgement gets discharged anyway. In the end recourse states mean more defaults happen through a voluntary non-foreclosure process but lending standards and interest rates are not that different and very few borrowers ever actually have a deficiency judgement let alone pay a dime toward one. |