Consumer Law

Paper on Predatory Mortgage Lending

By Jeff Sovern

Philip Bond, David K. Musto, and Bilge Yilmaz, all of Penn's Finance Department, have written Predatory Mortgage Lending.  Here's the abstract: 

Regulators express growing concern over predatory loans, which the authors take to mean loans that borrowers should decline. Using a model of consumer credit in which such lending is possible, they identify the circumstances in which it arises both with and without competition. The authors find that predatory lending is associated with highly collateralized loans, inefficient refinancing of subprime loans, lending without due regard to ability to pay, prepayment penalties, balloon payments, and poorly informed borrowers. Under most circumstances competition among lenders attenuates predatory lending. They use their model to analyze the effects of legislative interventions.

Full post as published by CL&P Blog on March 28, 2009 (boomark / email).