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Geographic Consistency of Subprime Loan Features and Foreclosures

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Abstract

The recent rise in subprime foreclosures has prompted restrictions at the federal, state, and municipal levels against a range of loan features loosely termed “predatory.” The effectiveness of federal regulation depends on the consistency of those features’ impacts on foreclosures in markets nationwide. Using data on subprime refinance and purchase mortgages in ten metropolitan areas, I examine the impact of long prepayment penalty periods, balloon payments, and reduced documentation on the probability of foreclosure. Results indicate that reduced documentation is consistently associated with higher probabilities of foreclosure, while the impacts of the other features are more sporadic.

Suggested Citation

  • Morgan J. Rose, 2009. "Geographic Consistency of Subprime Loan Features and Foreclosures," UMBC Economics Department Working Papers 09-113, UMBC Department of Economics, revised 01 May 2010.
  • Handle: RePEc:umb:econwp:09113
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    File URL: http://www.umbc.edu/economics/wpapers/wp_10_118.pdf
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    Keywords

    subprime mortgages; foreclosure; financial regulation; prepayment penalties; reduced documentation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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