Geographic Variation in Subprime Loan Features, Foreclosures and Prepayments

Posted: 22 Jul 2011 Last revised: 8 Aug 2011

See all articles by Morgan J. Rose

Morgan J. Rose

University of Maryland, Baltimore County; Office of the Comptroller of the Currency

Date Written: March 22, 2011

Abstract

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

Rose, Morgan J., Geographic Variation in Subprime Loan Features, Foreclosures and Prepayments (March 22, 2011). Review of Economics and Statistics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1889442

Morgan J. Rose (Contact Author)

University of Maryland, Baltimore County ( email )

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Baltimore, MD 21250
United States
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Office of the Comptroller of the Currency

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