Journal Article

The varying effects of predatory lending laws on high-cost mortgage applications

Abstract: Federal, state, and local predatory lending laws are designed to restrict and in some cases prohibit certain types of high-cost mortgage credit in the subprime market. Empirical evidence using the spatial variation in these laws shows that the aggregate flow of high-cost mortgage credit can increase, decrease, or be unchanged after these laws are enacted. Although it may seem counterintuitive to find that a law that prohibits lending could be associated with more lending, it is hypothesized that a law may reduce the cost of sorting honest loans from dishonest loans and lessen borrowers' fears of predation, thus stimulating the high-cost mortgage market.

Keywords: Banking law; Mortgages; Home equity loans;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2007

Volume: 89

Issue: Jan

Pages: 39-60