U.S. mortgages are peculiar because of valuable embedded options: a non-recourse default option (you can turn in the keys and walk away, and in many states the bank cannot pursue your other assets) that is rooted in state law and custom, and which is most valuable on low-down-payment loans because higher leverage makes it more likely the house value falls below the mortgage.

causalpending

Speaker

Arnold Kling

Evidence Quote

what I think is peculiar about our mortgages are what I call the embedded options... the option to turn in the keys and walk away from the mortgage that is known as it technically is a non-recourse loan

Source

Arnold Kling on the Unseen World of Banking, Mortgages, and Government 07/5/2010EconTalk
Created: 6/13/2026, 7:04:06 PM

My Notes

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