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Predatory mortgage lending

  • Bond, Philip
  • Musto, David K.
  • Yilmaz, Bilge
Registered author(s):

    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304-405X(09)00146-9
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 94 (2009)
    Issue (Month): 3 (December)
    Pages: 412-427

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    Handle: RePEc:eee:jfinec:v:94:y:2009:i:3:p:412-427
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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    1. Ernst-Ludwig VON THADDEN, 1998. "Asymmetric Information, Bank Lending and Implicit Contracts : The Winner's Curse," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9809, Université de Lausanne, Faculté des HEC, DEEP.
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    8. Gregory Elliehausen & Michael E. Staten, 2004. "Regulation of Subprime Mortgage Products: An Analysis of North Carolina's Predatory Lending Law," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 411-433, December.
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    17. Bostic, Raphael W. & Engel, Kathleen C. & McCoy, Patricia A. & Pennington-Cross, Anthony & Wachter, Susan M., 2008. "State and local anti-predatory lending laws: The effect of legal enforcement mechanisms," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 47-66.
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