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Assessing the impact of North Carolina's predatory lending law

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  • Roberto Quercia
  • Michael Stegman
  • Walter Davis

Abstract

This article examines changes in subprime mortgage originations before and after the implementation of North Carolina's Predatory Lending Law. Previous studies have noted a decline in overall subprime lending. This was to be expected, since the law was intended to reduce the number of predatory or abusive subprime loans. But which components of subprime lending declined, which remained stable or increased, and what happened to those loans that the law defines as predatory? Using a database of 3.3 million loans from 1998 to 2002, we find that the reduction that occurred after the law took effect was entirely due to a decline in refinancing loans and that almost 90 percent of this decline can be traced to a reduction in predatory loans. The law is doing what it was intended to do: eliminate abusive loans without restricting the supply of subprime mortgage capital for borrowers with blemished credit records.

Suggested Citation

  • Roberto Quercia & Michael Stegman & Walter Davis, 2004. "Assessing the impact of North Carolina's predatory lending law," Housing Policy Debate, Taylor & Francis Journals, vol. 15(3), pages 573-601.
    • Handle: RePEc:taf:houspd:v:15:y:2004:i:3:p:573-601
    DOI: 10.1080/10511482.2004.9521514
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    Citations

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    Cited by:

    1. Gwinner, William B. & Sanders, Anthony, 2008. "The sub prime crisis : implications for emerging markets," Policy Research Working Paper Series 4726, The World Bank.
    2. Ho, Giang & Pennington-Cross, Anthony, 2006. "The impact of local predatory lending laws on the flow of subprime credit," Journal of Urban Economics, Elsevier, vol. 60(2), pages 210-228, September.
    3. Philip Bond & David K. Musto & Bilge Yilmaz, 2006. "Predatory lending in rational world," Working Papers 06-2, Federal Reserve Bank of Philadelphia.
    4. W. Scott Frame & Lawrence J. White, 2009. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers 09-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Philip Bond & David K. Musto & Bilge Yilmaz, 2008. "Predatory mortgage lending," Working Papers 08-24, Federal Reserve Bank of Philadelphia.
    6. Stephen L. Ross, 2005. "The Continuing Practice and Impact of Discrimination," Working papers 2005-19, University of Connecticut, Department of Economics, revised Jul 2006.

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