Which of the following is true of a non-recourse mortgage?
A. The house buyer, if unable to make payments, can lose all his or her possessions
B. The house buyer has an American-style put option on the house
C. The house buyer has a European-style put option on the house
D. The lender is less likely to lose money on the mortgage
B
In a non-recourse mortgage a lender cannot seize other assets of the borrower besides the house in order to be repaid. This means that if the price of the house declines below the balance outstanding on the mortgage the borrower can in principle give the house to the lender in return for tearing up the mortgage. The borrower therefore has an American style put option to sell the house for the amount outstanding on the mortgage.
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