39 Pages Posted: 23 Oct 2008
Date Written: October 10, 2008
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.
Suggested Citation: Suggested Citation
Bond, Philip and Musto, David K. and Yilmaz, Bilge, Predatory Mortgage Lending (October 10, 2008). FRB of Philadelphia Working Paper No. 08-24. Available at SSRN: https://ssrn.com/abstract=1288094 or http://dx.doi.org/10.2139/ssrn.1288094