Mortgage Lending Regulatory Arbitrage: A Cross-Sectional Analysis of Nonbank Lenders

40 Pages Posted: 27 May 2016 Last revised: 17 Apr 2017

See all articles by Zsuzsa R. Huszar

Zsuzsa R. Huszar

National University of Singapore ; Central European University

Wei Yu

California State Polytechnic University, Pomona

Date Written: April 5, 2017

Abstract

This study provides new insights about less regulated nonbank lenders, major originators of risky subprime mortgages prior to 2008. We document significant cross-sectional variations in lending practices and show that nonbank lenders who entered the industry via less-regulated states are associated with riskier loan originations. We also show that states with lower entry barriers have not significantly increased homeownership rates nor reduced poverty rates. Overall our findings, consistent with the traditional banking literature, suggest that while low industry entry barrier encourages more risk taking by new financial institutions it does not necessarily translate into long term economic benefits.

Keywords: Mortgage licensing regulations; Nonbank lenders; Regulatory arbitrage; Residential mortgage lending

JEL Classification: G21; G28

Suggested Citation

Huszar, Zsuzsa R. and Huszar, Zsuzsa R. and Yu, Wei, Mortgage Lending Regulatory Arbitrage: A Cross-Sectional Analysis of Nonbank Lenders (April 5, 2017). Journal of Real Estate Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2785533 or http://dx.doi.org/10.2139/ssrn.2785533

Zsuzsa R. Huszar (Contact Author)

National University of Singapore ( email )

Business School
15 Kent Ridge Drive
Singapore, 117592
Singapore
+65 6516 8017 (Phone)
+65 6779 2083 (Fax)

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

Wei Yu

California State Polytechnic University, Pomona ( email )

3801 W. Temple Avenue Pomona
Pomona, CA 91768
United States
909-869-2402 (Phone)

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