To Change or Not to Change: The Impact of the Law on Mortgage Origination
Banco de Portugal Working Papers 2020
64 Pages Posted: 8 Feb 2021
Date Written: December 2020
Differences in mortgage law have significant effects on loan characteristics at origination. Borrower-friendly laws impose higher costs and risks for lenders and, thus, induce effects on mortgage pricing and leverage. However, not all borrower-friendly laws have the same effects. This finding is established using loan-level data for the U.S. mortgage market between 2001 and 2011. Judicial foreclosure requirements imply higher mortgage interest rates due to higher recovery costs and activate the price channel. Recourse restrictions imply higher loan collateralization to compensate for the fewer recovery opportunities and activate the collateral channel.
Keywords: mortgage, mortgage law, interest rate, mortgage pricing, judicial foreclosure, nonrecourse, loan-to-value ratio, credit supply
JEL Classification: E43, G21, G28, K25, K35
Suggested Citation: Suggested Citation