We show that mortgage recourse systems, by discouraging default, magnify the impact of nominal rigidities and cause deeper and more persistent recessions. This mechanism can account for up to 40% of the recovery gap during the Great Recession between the U.S. (mostly a non-recourse economy) and...

We show how securitization affects the size of the nonbank lending sector through a novel price-based channel. We identify the channel using a regulatory spillover shock to the cross-section of mortgage-backed security prices: the U.S. Liquidity Coverage Ratio. The shock increases secondary...

We use the new market for Credit Risk Transfers (CRTs) and the landfall of two major hurricanes to study both how markets price default risk from natural disasters, and how U.S. mortgage rates would change in absence of government-backed guarantees. First, we exploit that CRTs differ in the...

This article discusses how macroeconomic arguments should shape the design of mortgage contracts. Mortgage recourse systems, by discouraging default, magnify the impact of nominal rigidities and cause deeper and more persistent recessions. Default mitigates liquidity traps because it...

Using a new financial product (Credit Risk Transfers, CRTs) we study how markets would price hurricane risk in U.S. mortgages absent intervention from the government-sponsored enterprises (GSEs). We hand-collect a novel and detailed database to exploit CRTs' heterogeneous exposure to Hurricanes...