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Publication Date

March 2010


Alan White, Carolina Reid, Lei Ding, Roberto G. Quercia


National State Attorneys General Program

By the end of 2007, 30 states and the District of Colombia had passed some sort of subprime mortgage regulation statute, while the remaining states left the subprime mortgage market unregulated.Were these state mortgage laws effective in restraining risky mortgage lending and mitigating the surge in foreclosures?

Our study takes advantage of this natural experiment and compares loan terms, mortgage foreclosures and defaults in states with and without antipredatory lending laws (“APLs”), using a sample of 1.2 million mortgage loans originated during the subprime boom and observed monthly through the end of 2008.

Using these loan level data, we find that State APLs are associated with a significant reduction in prepayment penalties and appear also to reduce the incidence of option ARM loans. APLs also clearly affected the risk of default and foreclosure: they reduced the likelihood of a loan becoming 90+ days delinquent by 15 percent.

These results prove to be remarkably consistent, even after testing for different samples and law specifications.

This analysis, combined with other research, suggests that strong state APLs are an important tool for consumer protection and that state APLs should not be overridden by federal preemption.

Topics(s): Default, Bankruptcy, & Foreclosure, Housing Policy, Mortgage Finance