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: CL&P Blog

Paper on the Effect of State and Local Anti-Predatory Lending Laws

By Jeff Sovern

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Raphael W. Bostic of the University of Southern California - School of Policy Planning and Development, Kathleen C. Engel of the Cleveland State University - Cleveland-Marshall College of Law, Patricia A. McCoy of Connecticut, and Anthony Pennington-Cross of the Marquette University - Department of Economics, have co-authored State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms, available at http://ssrn.com/abstract=1005423. Here's the abstract:

Subprime mortgage lending has grown rapidly in recent years and with it, so have concerns about predatory lending. In response to evidence of predatory lending, most states have enacted new laws or expanded existing laws to address abuses in the subprime home loan market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context. Our results are consistent with the view that anti-predatory lending laws influence subprime lending markets and that disaggregating the details of the overall legal framework into its component parts is essential for understanding subprime market dynamics. The restrictions, coverage, and enforcement components all have significant relationships with subprime market outcomes, with the coverage relationship found to be broadly consistent with the reverse lemons hypothesis put forward by Ho and Pennington-Cross (2007). The results also suggest that the newer mini-HOEPA laws have had an impact on the subprime market above and beyond the older preexisting laws, particularly for subprime originations. Broader coverage through these new laws is associated with higher origination likelihoods, while increased restrictions through the mini-HOEPA laws are associated with lower origination propensities.

Full post as published by CL&P Blog on February 05, 2008 (boomark / email).