The first set of factors lower the cost of default. Default propensity is exaggerated by state laws providing for a greater amount of homestead protection or for less-than-full recourse on the defaulting borrowers by lenders. This is because they shield a greater proportion of the borrower’s wealth and income from capture by the lender post-default and, (if applicable), a subsequent bankruptcy. Recent evidence also suggests that the 2005 personal bankruptcy reform may have contributed to lessening (non-strategic) borrowers’ financial ability and incentive to use the Chapter 13 option, remain current on their mortgage obligations, and save their homes. 7 The.
