Reading 45 ■ Introduction to Asset- Backed Securities

Could someone help me to understand the below as per my understanding the lender should get $175,000? Because the underlying property is the house or is it not clear from the question?

Q: Fran Martin obtains a non- recourse mortgage loan for $500,000. One year later, when the outstanding balance of the mortgage is $490,000, Martin cannot make his mortgage payments and defaults on the loan. The lender forecloses on the loan and sells the house for $315,000. What amount is the lender entitled to claim from Martin?

A: $0, Because the loan has a non- recourse feature, the lender can only look to the underlying property to recover the outstanding mortgage balance and has no further claim against the borrower. The lender is simply entitled to foreclose on the home and sell it.

Non-recourse means that they cannot come after the borrower for any shortfall on the collateral.

thanks million! I was reading “recourse” these wordings kill me… I was being so careless…

My pleasure.

I have the same thing :roll_eyes:
separating the words helps me to remember it, recourse(re+course), “re” means, something to be again or gets back on the other hand, “course” means as a verb of hunt or pursue.

then to add them together which the lender has the rights to get the value of the property back as the whole in CFA context.
then we add non-recourse leads us to we can’t go after the value although the borrower still logically owns the lender.

Non - No claim ( beyond the mortgage)

Re - Re claim ( mortgage + other assets of borrower)