Working Paper: NBER ID: w19550
Authors: Sumit Agarwal; Gene Amromin; Itzhak Bendavid; Souphala Chomsisengphet; Douglas D. Evanoff
Abstract: We measure the effect of an anti-predatory pilot program (Chicago, 2006) on mortgage default rates to test whether predatory lending was a key element in fueling the subprime crisis. Under the program, risky borrowers and/or risky mortgage contracts triggered review sessions by housing counselors who shared their findings with the state regulator. The pilot cut market activity in half, largely through the exit of lenders specializing in risky loans and through decline in the share of subprime borrowers. Our results suggest that predatory lending practices contributed to high mortgage default rates among subprime borrowers, raising them by about a third.
Keywords: Predatory Lending; Subprime Crisis; Mortgage Default Rates; Antipredatory Legislation
JEL Codes: D14; D18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| predatory lending practices (G21) | high mortgage default rates (G21) |
| hb4050 pilot program (I28) | decline in active lenders (G21) |
| decline in active lenders (G21) | reduction of risky loans (G21) |
| decline in active lenders (G21) | increase in average credit quality of borrowers (G51) |
| hb4050 pilot program (I28) | modest effect on default rates (G33) |
| predatory lending practices (G21) | higher delinquency rates (G33) |
| loans with fraud indicators (G21) | even higher delinquency rates (G33) |