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Article
State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms
Journal of Economics and Business
  • Raphael W. Bostic, University of Southern California
  • Kathleen C. Engel, Cleveland State University
  • Patricia A. McCoy, University of Connecticut - Hartford
  • Anthony Pennington-Cross, Marquette University
  • Susan M. Wachter, University of Pennsylvania
Document Type
Article
Language
eng
Format of Original
20 p.
Publication Date
1-1-2008
Publisher
Elsevier
Abstract
Subprime mortgage lending has grown rapidly in recent years and with it, so have concerns about predatory lending. In response to evidence of predatory lending, most states have enacted new laws or expanded existing laws to address abuses in the subprime home loan market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context. The results of the analysis are consistent with the view that anti-predatory lending laws influence subprime lending markets and that disaggregating the details of the overall legal framework into its component parts is essential for understanding subprime market dynamics. The restrictions, coverage, and enforcement components all have significant relationships with subprime market outcomes, with the coverage relationship found to be broadly consistent with the reverse lemons hypothesis put forward by Ho and Pennington-Cross (2007). The results also suggest that the newer mini-HOEPA laws have had an impact on the subprime market above and beyond the older preexisting laws, particularly for subprime originations. Broader coverage through these new laws is associated with higher origination likelihoods, while increased restrictions through the mini-HOEPA laws are associated with lower origination propensities.
Comments

Accepted version. Journal of Economics and Business, Vol. 60, No. 1-2 (January/February 2008): 47-66. DOI.

NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economics and Business. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economics and Business, VOL 60, ISSUE 1-2, (January/February 2008) DOI.

Citation Information
Raphael W. Bostic, Kathleen C. Engel, Patricia A. McCoy, Anthony Pennington-Cross, et al.. "State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms" Journal of Economics and Business (2008) ISSN: 0148-6195
Available at: http://works.bepress.com/anthony_pennington_cross/29/