Mortgage Lending Regulatory Arbitrage: A Cross-Sectional Analysis of Nonbank Lenders

摘要

We provide new insights about less regulated nonbank lenders, major originators of risky subprime mortgages prior to 2008. We document significant cross-sectional variations in lending practices and show that nonbank lenders who entered the industry via less-regulated states are associated with riskier loan originations. We also show that states with lower entry barriers have not significantly increased homeownership rates nor reduced poverty rates. Consistent with the traditional banking literature, our findings suggest that while low industry entry barriers encourage more risk taking by new financial institutions, they do not necessarily translate into long-term economic benefits.