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Foreclosing on Opportunity: State Laws and Mortgage Credit

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Author Info
Karen M. Pence (Board of Governors of the Federal Reserve System)
Abstract

Foreclosure laws govern the rights of borrowers and lenders when borrowers default on mortgages. In states with laws favoring the borrower, the supply of mortgage credit may decrease because lenders face higher costs. To examine the laws' effects, I compare approved mortgage applications in census tracts that border each other but are located in different states. Using a regression-discontinuity design and semiparametric estimation methods, I find that loan sizes are 3% to 7% smaller in defaulter-friendly states; this result suggests that defaulter-friendly laws impose material costs on borrowers at the time of loan origination. Copyright (c) 2006 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/rest.2006.88.1.177
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Publisher Info
Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 88 (2006)
Issue (Month): 1 (April)
Pages: 177-182
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Handle: RePEc:tpr:restat:v:88:y:2006:i:1:p:177-182

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  1. Shane M. Sherlund, 2008. "The jumbo-conforming spread: a semiparametric approach," Finance and Economics Discussion Series 2008-01, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. John Kiff, 2009. "Canadian Residential Mortgage Markets: Boring But Effective?," IMF Working Papers 09/130, International Monetary Fund. [Downloadable!]
  3. Gwinner, William B. & Sanders, Anthony, 2008. "The sub prime crisis : implications for emerging markets," Policy Research Working Paper Series 4726, The World Bank. [Downloadable!]
  4. Mark Doms & Fred Furlong & John Krainer, 2007. "Subprime mortgage delinquency rates," Working Paper Series 2007-33, Federal Reserve Bank of San Francisco. [Downloadable!]
  5. Kaushik Basu, 2009. "A Simple Model of the Financial Crisis of 2007-9 with Implications for the Design of a Stimulus Package," Working Papers id:2179, esocialsciences.com. [Downloadable!]
  6. Hajime Tomura, 2007. "Firms Dynamics, Bankruptcy Laws and Total Factor Productivity," Working Papers 07-17, Bank of Canada. [Downloadable!]
  7. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Sarah W. Carroll & Wenli Li, 2008. "The homeownership experience of households in bankruptcy," Working Papers 08-14, Federal Reserve Bank of Philadelphia. [Downloadable!]
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