The Impact of Local Predatory Lending Laws on the Flow of Subprime Credit

FRB of St. Louis Working Paper No. 2006-009A

56 Pages Posted: 27 Feb 2006

See all articles by Giang Ho

Giang Ho

University of California, Los Angeles (UCLA)

Anthony Pennington-Cross

Marquette University - Dept. of Finance

Date Written: February 2006

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 rejections, while having little impact on the flow (application and origination) of credit. However, the strength of the law, measured by the extent of market coverage and the extent of prohibitions, can have strong impacts on both the flow of credit and rejections.

Keywords: Mortgages, Predatory, Laws, Subprime

JEL Classification: G21, C25

Suggested Citation

Ho, Giang and Pennington-Cross, Anthony N., The Impact of Local Predatory Lending Laws on the Flow of Subprime Credit (February 2006). FRB of St. Louis Working Paper No. 2006-009A, Available at SSRN: https://ssrn.com/abstract=885514

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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