In several states of the United States, a nonrecourse mortgage is a type of loan where the lender can only seize the borrower's home, which is financed through the mortgage, in the event of a default. The lender cannot go after the borrower's other assets. This essentially provides the borrower with an American-style put option on their home. If the housing prices fall, the borrower can sell their home to the lender for the principal outstanding on the mortgage. This feature of nonrecourse mortgages provides a level of protection for borrowers, as it limits the lender's recourse to the collateralized property only.

Choice A is incorrect. A Teaser Rate is an initial low interest rate on a loan or mortgage that's temporarily lower than the eventual standard rate. It does not relate to the seizure of assets in case of default.

Choice B is incorrect. NINJA borrowing refers to a type of lending where the borrower does not need to provide proof of income, job, or assets (No Income, No Job or Assets). This term doesn't describe the feature where only the borrower's home can be seized in case of default.

Choice D is incorrect. Securitization involves pooling various types of contractual debt such as residential mortgages and selling their related cash flows to third-party investors as securities. It doesn't refer specifically to any feature that allows lenders to seize only certain assets in case of default.

Things to Remember

• A Teaser Rate is an initial interest rate charged on a mortgage that is artificially low.