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Legal Restrictions in Personal Loan Markets

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Author Info
Brent Ambrose ()
Anthony Sanders ()

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Abstract

This study examines the pricing of personal loans in the form of second mortgages to determine whether state-specific default laws have an effect on the availability and cost of that debt. We examine the pricing of loans to higher risk borrowers and whether borrowers in states that limit lender ability to seek default remedies pay higher credit costs. Our results indicate that, for the most part, lenders rationally price loans to higher risk borrowers. However, when we focus on borrowers with low credit scores, the results indicate that mean actual loan rates are higher than those predicted by our model. The results also indicate that state-specific default laws have an effect on the price of credit. Finally, the results show that there is a greater degree of error in the pricing of second mortgage loans to borrowers with low credit scores than to borrowers with high credit scores. Copyright Springer Science + Business Media, Inc. 2004

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File URL: http://hdl.handle.net/10.1007/s11146-004-4876-y
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Publisher Info
Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 30 (2004)
Issue (Month): 2 (November)
Pages: 133-151
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:jrefec:v:30:y:2004:i:2:p:133-151

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

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Related research
Keywords: second mortgages; credit risk; mortgage pricing;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Clauretie, Terrence M & Herzog, Thomas N, 1990. "The Effect of State Foreclosure Laws on Loan Losses: Evidence from the Mortgage Insurance Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 221-33, May. [Downloadable!] (restricted)
  2. Barth, James R & Cordes, Joseph J & Yezer, Anthony M J, 1986. "Benefits and Costs of Legal Restrictions on Personal Loan Markets," Journal of Law & Economics, University of Chicago Press, vol. 29(2), pages 357-80, October.
  3. Berkowitz, Jeremy & Hynes, Richard, 1999. "Bankruptcy Exemptions and the Market for Mortgage Loans," Journal of Law & Economics, University of Chicago Press, vol. 42(2), pages 809-30, October.
  4. Brueckner, Jan K, 2000. "Mortgage Default with Asymmetric Information," The Journal of Real Estate Finance and Economics, Springer, vol. 20(3), pages 251-74, May. [Downloadable!] (restricted)
  5. Ambrose, Brent W & Buttimer, Richard J, Jr, 2000. "Embedded Options in the Mortgage Contract," The Journal of Real Estate Finance and Economics, Springer, vol. 21(2), pages 95-111, September. [Downloadable!] (restricted)
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  6. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February. [Downloadable!] (restricted)
  7. Ambrose, Brent W & Buttimer, Richard J, Jr & Capone, Charles A, 1997. "Pricing Mortgage Default and Foreclosure Delay," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 314-25, August.
  8. Ambrose, Brent W. & Pennington-Cross, Anthony, 2000. "Local economic risk factors and the primary and secondary mortgage markets," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 683-701, December. [Downloadable!] (restricted)
  9. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-57, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giang Ho & Anthony Pennington-Cross, 2006. "Predatory lending laws and the cost of credit," Working Papers 2006-022, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  2. Giang Ho & Anthony Pennington-Cross, 2005. "The impact of local predatory lending laws," Working Papers 2005-049, Federal Reserve Bank of St. Louis. [Downloadable!]
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