Lender recourse increases the likelihood of default

Allowing lenders recourse increases the likelihood that default occurs by a more lender-friendly method, new research from the Richmond Federal Reserve posits.

The research shows that in US states that allow lenders recourse, default occurs more frequently by deeds in lieu and short sales as recourse gives lenders better negotiating position. The analysis also finds recourse decreases the probability of default when there is a substantial likelihood that a borrower has negative home equity.

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