Voltron says: Here's how I look at it: If you live in a non-recourse state (i.e. where they can only repossess the house and cannot go after other non-mortgaged assets) then you will pay a higher interest rate because the banks know that they can't sue you for any shortfall should you default for any reason. You are FORCED to pay a higher interest rate, whether or not you would intentionally default. This is the same as saying you are FORCED to pay for an put option on the house. If you are forced to pay for this option, why wouldn't you use it?
http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html
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