Geographic Variation in Subprime Loan Features, Foreclosures and Prepayments
Posted: 22 Jul 2011 Last revised: 8 Aug 2011
Date Written: March 22, 2011
Using data on subprime mortgages from ten cities, I examine geographic variation in the effects of prepayment penalties, balloon loans, and reduced documentation on the probabilities of foreclosure and prepayment. Results indicate that across cities, reduced documentation is consistently related to higher probabilities of foreclosure, and prepayment penalties are consistently related to lower probabilities of prepayment. Prepayment penalties and balloon loans are more sporadically associated with foreclosures, and reduced documentation and balloon loans are more sporadically associated with prepayments. These results are robust to controls for several state anti-predatory lending law provisions, whose effects are also tested.
Keywords: foreclosure, prepayment, subprime mortgages, financial regulation, unobserved heterogeneity
JEL Classification: G21, G28, H77
Suggested Citation: Suggested Citation