Does Mandatory Disclosure Affect Subprime Lending to Minority Neighborhoods?
39 Pages Posted: 26 Jul 2013
Date Written: Sept 10, 2010
We examine changes in lending behavior in response to the Federal Reserve’s requirement to disclosure of loan pricing information implemented in 2004 for depository and nondepository residential lending institutions. We find that although subprime approval rates generally increased after 2004 as the housing market boomed, there was nonetheless a reduction in subprime approval rates to minority neighborhoods following implementation of the pricing disclosure requirement. We also find that the change in lending practices after the implementation of disclosure requirement was stronger for depository institutions than for nondepository institutions. Moreover, we find that depository institutions with good regulator reviews for effectively serving the financing needs of local communities are less likely to issue higher-priced subprime loans.
Keywords: depository institutions, nondepository institutions, information disclosure, subprime mortgage lending
JEL Classification: G01, G21, G14
Suggested Citation: Suggested Citation