New Latvia Law Takes on Legacy of Bad Mortgages

Six years after suffering Europe’s biggest recession, Latvia is trying a controversial recipe used in some U.S. states to free people of household debt, The Wall Street Journal reported. Parliament on Thursday passed a set of laws allowing people to choose a “non-recourse” mortgage, that will allow household borrowers the option of returning the keys to the banks if they can’t pay their loans, while preventing the lender from pursuing the borrower’s other assets. The legislation was partly modeled on non-recourse mortgage laws in 11 U.S. states. Non-recourse mortgages have been accused of aggravating the U.S. housing crisis in the mid- to late 2000s, triggering steeper losses for banks and fueling uncertainty about the extent of future defaults. The final Latvian proposal was watered down to allow a choice of options after the Scandinavian banks dominating the region said a law making non-recourse mortgages mandatory, passed last fall but not yet in force, would price middle-class families out of the market by doubling down payments. Read more. (Subscription required.)