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Predatory Lending and the Subprime CrisisSumit AgarwalNational University of Singapore Itzhak Ben-DavidOhio State University - Fisher College of Business, Finance Department Gene AmrominFederal Reserve Bank of Chicago Souphala ChomsisengphetGovernment of the United States of America - Office of the Comptroller of the Currency (OCC) Douglas D. EvanoffFederal Reserve Bank of Chicago October 19, 2012 Fisher College of Business Working Paper No. 2012-03-008 Charles A. Dice Center Working Paper No. 2012-8 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.
Number of Pages in PDF File: 53 Keywords: Predatory lending, subprime crisis, household finance, default JEL Classification: D14, D18 Accepted Paper SeriesDate posted: May 10, 2012 ; Last revised: October 20, 2012Suggested CitationContact Information
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