We show that mortgage recourse systems, by discouraging default, magnify the impact of nominal rigidities. They cause deeper and more persistent recessions. This mechanism can account for up to 31% of the recovery gap during the Great Recession between the U.S., mostly a non-recourse economy, and Spain, a recourse economy. General equilibrium effects explain most of the differences between mortgage systems. With recourse, highly indebted homeowners dramatically cut consumption in a crisis, and account for a larger share of the aggregate consumption decline. However, without recourse, mortgages would be more expensive for riskier households, and homeownership rates would be lower.