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Predatory mortgage lending

Author

Listed:
  • Philip Bond
  • David K. Musto
  • Bilge Yilmaz

Abstract

Regulators express growing concern over predatory loans, which we take to mean loans that borrowers should decline. Using a model of consumer credit in which such lending is possible, we identify the circumstances in which it arises both with and without competition. We find that predatory lending is associated with highly collateralized loans, inefficient refinancing of subprime loans, lending without due regard to ability to pay, prepayment penalties, balloon payments, and poorly informed borrowers. Under most circumstances competition among lenders attenuates predatory lending. We use our model to analyze the effects of legislative interventions.

Suggested Citation

  • Philip Bond & David K. Musto & Bilge Yilmaz, 2008. "Predatory mortgage lending," Working Papers 08-24, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:08-24
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    References listed on IDEAS

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    Cited by:

    1. Vincze, János, 2010. "Miért és mitől védjük a fogyasztókat?. Aszimmetrikus információ és/vagy korlátozott racionalitás [Asymmetric information and/or bounded rationality: why are consumers protected and from what?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 725-752.

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    Predatory lending;

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