Predatory Lending and the Subprime Crisis
Journal of Financial Economics (JFE), Forthcoming
Fisher College of Business Working Paper No. 2012-03-008
Charles A. Dice Center Working Paper No. 2012-8
56 Pages Posted: 10 May 2012 Last revised: 11 Feb 2014
There are 2 versions of this paper
Predatory Lending and the Subprime Crisis
Predatory Lending and the Subprime Crisis
Date Written: October 3, 2013
Abstract
We measure the effect of an anti-predatory pilot program (Chicago, 2006) on mortgage default rates to test whether predatory lending was a key element in fueling the subprime crisis. Under the program, risky borrowers and/or risky mortgage contracts triggered review sessions by housing counselors who shared their findings with the state regulator. The pilot cut market activity in half, largely through the exit of lenders specializing in risky loans and through decline in the share of subprime borrowers. Our results suggest that predatory lending practices contributed to high mortgage default rates among sub prime borrowers, raising them by about a third.
Keywords: Predatory lending, subprime crisis, household finance, default
JEL Classification: D14, D18
Suggested Citation: Suggested Citation