Journal of Business & Economic Policy

The Effect of State Anti-Predatory Lending Laws on the Mortgage Market
Amina Enkhbold

Abstract
I study the impact of state anti-predatory lending (APL) laws on the expansion of riskier loans. Banks were supplying low quality mortgages to risky borrowers via predatory practices, such as refinancing with higher fees, lending without regard for the ability to repay and inflating property values above the market price .In response to predatory lending practices, states began implementing APL laws between 1999 to 2006. However, this legislation was partially offset when the Office of the Comptroller Currency (OCC) exempted national banks from APL laws in 2004. I use the 2004 federal preemption rule, as an exogenous shock to assess the causal impact of APL laws on the mortgage market via national banks. I find that after the federal preemption rule, higher growing national banks increase loan origination by 10% relative to state banks. National banks increase the private share by 1.8% and the growth in marginal GSE by 3% in states with tougher APL laws.

Full Text: PDF