Predatory Lending Practices and Subprime Foreclosures - Distinguishing Impacts by Loan Category

摘要

A dramatic rise in subprime foreclosures over the past several years has led to calls for restrictions of or prohibitions against a range of lending practices loosely termed predatory. Several cities and states have enacted legislation or regulations aimed at eliminating predatory practices, and some advocacy groups have endorsed action at the national level. Using data on subprime refinance and home purchase mortgages from the Chicago metropolitan area, I examine the impact of long prepayment penalty periods, balloon payments and non-standard application process (i.e., low- and no-documentation) on the probability of foreclosure. Results suggest that the relationship between predatory lending practices and foreclosure rates is much more complicated than the arguments for restricting their use assume.