The Impact of Local Predatory Lending Laws

FRB of St. Louis Working Paper No. 2005-049A

89 Pages Posted: 28 Jul 2005  

Giang Ho

University of California, Los Angeles (UCLA)

Anthony Pennington-Cross

Marquette University - Dept. of Finance

Date Written: June 2005

Abstract

Local authorities in North Carolina, and subsequently in at least 23 other states, have enacted laws intending to reduce predatory and abusive lending. While there is substantial variation in the laws, they typically extend the coverage of the Federal Home Ownership and Equity Protection Act (HOEPA) by including home purchase and open-end mortgage credit, by lowering annual percentage rate (APR) and fees and points triggers, and by prohibiting or restricting the use of balloon payments and prepayment penalties. Empirical results show that the typical local predatory lending law tends to reduce applications and rejections, while having little impact on the flow of credit and only a modest impact on interest rates. However, the strength of the law, measured by the extent of market coverage and prohibitions, can have strong impacts on both the flow and cost of credit.

Keywords: Mortgages, Predatory, Laws, Subprime

JEL Classification: G21, C25

Suggested Citation

Ho, Giang and Pennington-Cross, Anthony, The Impact of Local Predatory Lending Laws (June 2005). FRB of St. Louis Working Paper No. 2005-049A. Available at SSRN: https://ssrn.com/abstract=761106 or http://dx.doi.org/10.2139/ssrn.761106

Giang Ho (Contact Author)

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

Anthony N. Pennington-Cross

Marquette University - Dept. of Finance ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

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