Predatory Lending and the Subprime Crisis

56 Pages Posted: 18 Oct 2013 Last revised: 3 Jun 2023

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Gene Amromin

Federal Reserve Bank of Chicago

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Douglas D. Evanoff

Federal Reserve Bank of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: October 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 subprime borrowers, raising them by about a third.

Suggested Citation

Agarwal, Sumit and Amromin, Gene and Ben-David, Itzhak and Chomsisengphet, Souphala and Evanoff, Douglas D., Predatory Lending and the Subprime Crisis (October 2013). NBER Working Paper No. w19550, Available at SSRN: https://ssrn.com/abstract=2342047

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

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Gene Amromin

Federal Reserve Bank of Chicago ( email )

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Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

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Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

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Douglas D. Evanoff

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
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