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Predatory lending laws and the cost of credit

  • Giang Ho
  • Anthony Pennington-Cross

Various states and other local jurisdictions have enacted laws intending to reduce predatory and abusive lending in the subprime mortgage market. These laws have created substantial geographic variation in the regulation of mortgage credit. This article examines whether these laws are associated with a higher or lower cost of credit. Empirical results indicate that the laws are associated with at most a modest increase in cost. However, the impact depends on the product type. In particular, loans with fixed (adjustable) rates are associated with a modest increase (decrease) in cost. Copyright 2008 American Real Estate and Urban Economics Association

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-022.

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Date of creation: 2006
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Handle: RePEc:fip:fedlwp:2006-022
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  1. Sa-Aadu, J & Sirmans, C F, 1989. "The Pricing of Adjustable Rate Mortgage Contracts," The Journal of Real Estate Finance and Economics, Springer, vol. 2(4), pages 253-66, December.
  2. James B. Kau & Donald C. Keenan & Walter J. Muller & James F. Epperson, 1990. "The Valuation and Analysis of Adjustable Rate Mortgages," Management Science, INFORMS, vol. 36(12), pages 1417-1431, December.
  3. Giang Ho & Anthony Pennington-Cross, 2005. "The impact of local predatory lending laws," Working Papers 2005-049, Federal Reserve Bank of St. Louis.
  4. Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "The evolution of the subprime mortgage market," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-56.
  5. Ambrose, Brent W. & Buttimer, Richard Jr., 2005. "GSE impact on rural mortgage markets," Regional Science and Urban Economics, Elsevier, vol. 35(4), pages 417-443, July.
  6. Ling, David C. & McGill, Gary A., 1998. "Evidence on the Demand for Mortgage Debt by Owner-Occupants," Journal of Urban Economics, Elsevier, vol. 44(3), pages 391-414, November.
  7. 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.
  8. Brent Ambrose & Anthony Sanders, 2004. "Legal Restrictions in Personal Loan Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 133-151, November.
  9. Giang Ho & Anthony Pennington-Cross, 2006. "The impact of local predatory lending laws on the flow of subprime credit," Working Papers 2006-009, Federal Reserve Bank of St. Louis.
  10. Sprecher, C. R. & Willman, Elliott, 1998. "The Margin Paradox in Adjustable-Rate Mortgages," Journal of Housing Economics, Elsevier, vol. 7(2), pages 180-190, June.
  11. Brent W. Ambrose & Michael LaCour-Little & Anthony B. Sanders, 2004. "The Effect of Conforming Loan Status on Mortgage Yield Spreads: A Loan Level Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(4), pages 541-569, December.
  12. Stephen A. Buser & Patric H. Hendershott & Anthony B. Sanders, 1985. "Pricing Life-of-Loan Rate Caps on Default-Free Adjustable-Rate Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 248-260.
  13. Keith D. Harvey & Peter J. Nigro, 2004. "Do Predatory Lending Laws Influence Mortgage Lending? An Analysis of the North Carolina Predatory Lending Law," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 435-456, December.
  14. Keith D. Harvey & Peter J. Nigro, 2003. "How Do Predatory Lending Laws Influence Mortgage Lending in Urban Areas? A Tale of Two Cities," Journal of Real Estate Research, American Real Estate Society, vol. 25(4), pages 479-508.
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