Mortgage Product Substitution and State Anti-Predatory Lending Laws: Better Loans and Better Borrowers?

51 Pages Posted: 26 Aug 2009 Last revised: 24 Oct 2012

Raphael W. Bostic

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Kathleen C. Engel

Suffolk University Law School

Patricia A. McCoy

Boston College Law School

Anthony Pennington-Cross

Marquette University - Dept. of Finance

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Accounting Department

Date Written: May 12, 2009

Abstract

Mounting foreclosures and recent disclosures of abusive lending practices have led many states to adopt new anti-predatory lending laws. Researchers have examined the impact of such laws on credit flows and the cost of credit. This research extends the literature by examining if the market responded to these laws by substituting different mortgage products for those restricted by anti-predatory lending provisions. The evidence indicates that the new laws were effective in restricting loans with targeted characteristics and that the market substituted other product types to maintain affordability in the face of these restrictions.

Keywords: Real estate, mortgages, housing, abusive lending, predatory lending, mortgage products, product substitution, adjustment to prohibition

JEL Classification: G21, K29

Suggested Citation

Bostic, Raphael W. and Chomsisengphet, Souphala and Engel, Kathleen C. and McCoy, Patricia A. and Pennington-Cross, Anthony and Wachter, Susan M., Mortgage Product Substitution and State Anti-Predatory Lending Laws: Better Loans and Better Borrowers? (May 12, 2009). U of Penn, Inst for Law & Econ Research Paper No. 09-27; Atlantic Economic Journal, Vol. 40, p. 273, 2012; U of Penn, Inst for Law & Econ Research Paper No. 09-27; Suffolk University Law School Research Paper No. 09-44. Available at SSRN: https://ssrn.com/abstract=1460871 or http://dx.doi.org/10.2139/ssrn.1460871

Raphael W. Bostic

Federal Reserve Banks - Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Kathleen Engel

Suffolk University Law School ( email )

120 Tremont Street
Boston, MA 02108-4977
United States
617-994-6831 (Phone)

HOME PAGE: http://www.law.suffolk.edu/directories/administrator.cfm?InstructorID=1111

Patricia Ann McCoy

Boston College Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

Anthony N. Pennington-Cross (Contact Author)

Marquette University - Dept. of Finance ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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