IDEAS home Printed from https://ideas.repec.org/a/taf/rjerxx/v38y2016i4p505-538.html
   My bibliography  Save this article

The Impact of State Foreclosure and Bankruptcy Laws on Higher-Risk Lending: Evidence from FHA and Subprime Mortgage Originations

Author

Listed:
  • Qianqian Cao
  • Shimeng Liu

Abstract

State foreclosure and bankruptcy laws govern the rights of mortgage lenders and borrowers during foreclosure and bankruptcy proceedings and thereby affect lenders' exposure to credit risk. In this paper, we examine the impact of these laws on the types of mortgages originated. The empirical identification is based on state-level variations in foreclosure and bankruptcy laws and a border estimation strategy. We find that higher-risk loans (FHA and subprime loans) are more likely to be originated in states with lender-friendly foreclosure laws. Also, higher-risk loans are less likely to be originated in states with a more generous bankruptcy homestead exemption. In addition, our results are consistent with the idea that FHA and subprime loans share a similar clientele and are close substitutes. These results are robust without the ordering assumption among conventional prime, FHA, and subprime loans.

Suggested Citation

  • Qianqian Cao & Shimeng Liu, 2016. "The Impact of State Foreclosure and Bankruptcy Laws on Higher-Risk Lending: Evidence from FHA and Subprime Mortgage Originations," Journal of Real Estate Research, Taylor & Francis Journals, vol. 38(4), pages 505-538, October.
    • Handle: RePEc:taf:rjerxx:v:38:y:2016:i:4:p:505-538
    DOI: 10.1080/10835547.2016.12091455
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10835547.2016.12091455
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10835547.2016.12091455?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:rjerxx:v:38:y:2016:i:4:p:505-538. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/rjer20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.