Thursday, March 03, 2011

Why aren't there more foreclosures in Europe?

Dwight Jaffee shows that mortgage foreclosures in Europe are still rare, even in distress countries such as Spain and the United Kingdom.  The question is why.  I have heard people in seminars suggest that it is because of recourse--it is ubiquitous in Europe.  But perhaps it is because the social safety net in Europe is stronger.   When Americans lose their jobs, it is hard for them to make mortgage payments.  When Europeans lose their jobs, it is still hard, but perhaps less so than in the US.  Just a thought....

1 comment:

m_uk said...

In the UK all domestic mortgages are recourse thus giving the homeowner every incentive to sit tight and ride out the downturn if house prices fall. The social security net might be more substantial than in the US but probably not by as much as thought. Perhaps more importantly house price swings are rarely as severe as in the US simply due to the chronic shortage of building land and population density. Except in truly exceptional circumstances, a finite supply of land will cause prices sooner or later to stabilize and then rise.

In France all mortgages are non recourse but there, unlike in the US, mortgages are extremely difficult to obtain for the simple reason that the financial institution has so much to lose!!!