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Regulation of Subprime Mortgage Products: An Analysis of North Carolina's Predatory Lending Law

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  • Gregory Elliehausen

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  • Michael E. Staten

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    Abstract

    This paper estimates the effect of North Carolina's high-cost mortgage law on the subprime mortgage market in that state. The results indicate that creditors sharply restricted lending to higher risk consumers in North Carolina following passage of the law. Creditors did not restrict lending in neighboring states or to lower risk consumers in North Carolina. These results suggest that the restriction in North Carolina was due to rationing in response to higher costs imposed by the law. The findings of this study are of importance beyond North Carolina. Other states and municipalities have proposed or passed similar or more restrictive laws. These laws risk taking back some of the gains in credit availability that lower income and higher risk consumers gained in the 1990s.

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    Bibliographic Info

    Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

    Volume (Year): 29 (2004)
    Issue (Month): 4 (December)
    Pages: 411-433

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    Handle: RePEc:kap:jrefec:v:29:y:2004:i:4:p:411-433

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    Web page: http://www.springerlink.com/link.asp?id=102945

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    Cited by:
    1. Giang Ho & Anthony Pennington-Cross, 2006. "The impact of local predatory lending laws on the flow of subprime credit," Working Papers 2006-009, Federal Reserve Bank of St. Louis.
    2. Christian E. Weller, 2008. "Credit Access, the Costs of Credit and Credit Market Discrimination," Working Papers wp171, Political Economy Research Institute, University of Massachusetts at Amherst.
    3. Giang Ho & Anthony Pennington-Cross, 2007. "The varying effects of predatory lending laws on high-cost mortgage applications," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 39-60.
    4. W. Scott Frame & Lawrence J. White, 2009. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 09-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Stephen L. Ross, 2005. "The Continuing Practice and Impact of Discrimination," Working papers 2005-19, University of Connecticut, Department of Economics, revised Jul 2006.
    6. Goodman, Allen C. & Smith, Brent C., 2010. "Residential mortgage default: Theory works and so does policy," Journal of Housing Economics, Elsevier, Elsevier, vol. 19(4), pages 280-294, December.
    7. Philip Bond & David K. Musto & Bilge Yilmaz, 2008. "Predatory mortgage lending," Working Papers 08-24, Federal Reserve Bank of Philadelphia.
    8. Giang Ho & Anthony Pennington-Cross, 2005. "The impact of local predatory lending laws," Working Papers 2005-049, Federal Reserve Bank of St. Louis.
    9. Jevgenijs Steinbuks & Gregory Elliehausen, 2014. "The Economic Effects of Legal Restrictions on High-Cost Mortgages," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 49(1), pages 47-72, July.
    10. W. Scott Frame & Lawrence J. White, 2014. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 14-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    11. Bond, Philip & Musto, David K. & Yilmaz, Bilge, 2009. "Predatory mortgage lending," Journal of Financial Economics, Elsevier, Elsevier, vol. 94(3), pages 412-427, December.
    12. Xudong An & Raphael W. Bostic, 2006. "Have the Affordable Housing Goals been a Shield against Subprime? Regulatory Incentives and the Extension of Mortgage Credit," Working Paper 8572, USC Lusk Center for Real Estate.
    13. Anthony Pennington-Cross & Giang Ho, 2008. "Predatory Lending Laws and the Cost of Credit," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(2), pages 175-211, 06.
    14. Allen C. Goodman & Brent C. Smith, 2010. "Housing default: theory works and so does policy," Working Paper, Federal Reserve Bank of Richmond 10-10, Federal Reserve Bank of Richmond.

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