It certainly seems that full recourse mortgages in fact facilitate a lower delinquency rate. Consider the chart below.
Chart from Brookfield Inc.
Keep in mind that even though the delinquency rate was low back in
the early nineties, that still didn't prevent the major real estate crash in Toronto between
1989 and 1996. I think this fact alone destroys the argument that
full recourse mortgages lead to more responsible lending! If you are still not
sold consider the following article from CNBC:
First,
it's not true that the U.S. is uniformally nonrecourse. Two states with among
the highest foreclosure rates, Florida and Nevada, are full recourse. In fact,
the Federal Reserve classifies most states as full recourse. Ireland has full
recourse mortgages and some of the harshest bankruptcy laws in the developed
world.
Let me remind you what
Ireland's housing bubble looks like:
From CNBC:
Why would recourse loans not be as
effective as many people think they are? One possibility is that getting a
deficiency judgment encourages banks to make riskier loans in a booming housing
market. Since the lender does
not bear the risk of falling housing prices, they may be more willing to lend
into a housing bubble.
Please consider the last sentence in the paragraph above. If
anything, I think that full recourse combined with CMHC mortgage insurance
facilitates the growth of the housing bubble. Full recourse loans won't save
Canada's housing market, and neither will low delinquency rates! As Robert
Shiller said, housing market downturns have to do more with sociology than
anything else.
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