Federal preemption of state mortgage lending regulations may result in an increase in mortgage default risk, thus limiting consumer protection in the residential mortgage market.
A 2004 order by federal bank regulators that exempt national banks from tougher state anti-predatory lending laws led to more foreclosures and riskier lending among exempt lenders, researchers find.
Research suggests that strong state anti-predatory lending laws are an important tool for consumer protection and that state laws should not be overridden by federal preemption.
State anti-predatory laws provide an important safeguard against predatory mortgage lending.
Results of a descriptive analysis suggest that national banks and all lenders freed from following state anti-predatory lending laws following a federal preemption order may increased their risky subprime lending. But more analysis is needed to understand the effectiveness of state anti-predatory lending laws and the impact of federal preemption.
