Abstract
This paper estimates the effect of North Carolina's high-cost mortgage law on the subprime mortgage market in that state. The results indicate that creditors sharply restricted lending to higher risk consumers in North Carolina following passage of the law. Creditors did not restrict lending in neighboring states or to lower risk consumers in North Carolina. These results suggest that the restriction in North Carolina was due to rationing in response to higher costs imposed by the law. The findings of this study are of importance beyond North Carolina. Other states and municipalities have proposed or passed similar or more restrictive laws. These laws risk taking back some of the gains in credit availability that lower income and higher risk consumers gained in the 1990s.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Aizcorbe, A. M., A. B. Kennickell, and K. B. Moore. (2003). “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Surveys of Consumer Finances,” Federal Reserve Bulletin (January), 1-32.
Andrukonis, D. A. (2000). “Freddie Mac Defends Purchase of Subprime Mortgages,” American Banker (April 6).
Barro, R. J. (1976). “The Loan Market, Collateral, and Rates of Interest,” Journal of Money, Credit and Banking 8(November), 439-456.
Barron, J. M., G. Elliehausen, and M. E. Staten. (2000). “Monitoring the Household Sector with Aggregate Credit Bureau Data,” Business Economics (January), 63-76.
Benjamin, D. K. (1978). “The Use of Collateral to Enforce Debt Contracts,” Economic Inquiry 16(July), 333-358.
Bergquist, E. (2001). “Industry Hits Back on Lending Abuse Laws,” American Banker (January 26).
Bergquist, E. (2002). “Georgia Predator Law Drives Out Some Lenders,” American Banker (October 1).
Bizer, D., and P. M. DeMarzo. (1992). “Sequential Banking,” Journal of Political Economy 100(January), 41-61.
Cameron, A. C., and P. K. Trivedi. (1986). “Econometric Models Based on Count Data: Comparisons and Applications of Some Estimators and Tests,” Journal of Applied Econometrics 1(January), 29-53.
Cameron, A. C., P. K. Trivedi, F. Milne, and J. Piggott. (1988). “A Microeconomic Model of the Demand for Health Care and Health Insurance in Australia,” Review of Economic Studies 55(January), 85-106.
Durkin, T. A., and G. B. Canner. (2000). Memorandum to the Board of Governors, Federal Reserve System, Regulatory Analysis of Proposed Revisions to Regulation Z Concerning Predatory Lending Practices, (December 6).
Ernst, K., J. Farris, and E. Stein. (2002). North Carolina's Subprime Home Loan Market after Predatory Lending Reform, Durham, NC: Center for Responsible Lending, (August 13).
Federal Reserve Board. (2000). Public Hearing on Home Equity Lending (July 27).
Hausman, J., B. H. Hall, and Z. Griliches. (1984). “Econometric Models for Count Data with an Application to the Patents-R&D Relationship,” Econometrica 52(July), 909-938.
Juster, F. T., and R. P. Shay. (1964). Consumer Sensitivity to Finance Rates: An Empirical and Analytical Investigation, Occasional Paper 88, New York: National Bureau of Economic Research.
Liang, K.-Y., and S. L. Zeger. (1986). “Longitudinal Data Analysis Using Generalized Linear Models,” Biometrika 73(April), 13-22.
Phillips, L. W., and B. J. Calder. (1980). “Evaluating Consumer Protection Programs: Part II, Promising Methods,” Journal of Consumer Affairs 14(Summer), 9-36.
Phillips, L. W., and B. J. Calder. (1979). “Evaluating Consumer Protection Programs: Part I, Weak but Commonly Used Research Designs,” Journal of Consumer Affairs 13(Winter), 157-185.
Phillips-Patrick, F., E. Hirschhorn, J. Jones, and J. LaRocca. (2000). What about Subprime Mortgages? Washington: Office of Thrift Supervision, (June).
Staten, M. E., and G. Elliehausen. (2001). “The Impact of the Federal Reserve Board's Proposed Revisions to HOEPA on the Number and Characteristics of HOEPA Loans,” Working Paper No. 61. Washington: Georgetown University, McDonough School of Business, Credit Research Center. Available at www.msb.edu/prog/crc/pdf/WP61.pdf.
U.S. Department of Housing and Urban Development and U.S. Department of the Treasury. (2000). Curbing Predatory Home Mortgage Lending: A Joint Report.
United States Senate, Committee on Banking, Housing, and Urban Affairs. (2000). Report of the Staff to Chairman Gramm-Predatory Lending Practices: Staff Analysis of Regulators' Responses, 106th Congress Second Session, (August 23).
United States Senate, Committee on Banking, Housing, and Urban Affairs. (2001). “Predatory Mortgage Lending: The Problem, Impact and Responses” First Hearing in a Series before the Committee on Banking, Housing, and Urban Affairs 107th Congress First Session, (July 26).
Zeger, S. L., K.-Y. Liang, and P. S. Albert. (1988). “Models for Longitudinal Data: A Generalized Estimating Equation Approach,” Biometrics 44(December), 1049-1060.
Rights and permissions
About this article
Cite this article
Elliehausen, G., Staten, M.E. Regulation of Subprime Mortgage Products: An Analysis of North Carolina's Predatory Lending Law. The Journal of Real Estate Finance and Economics 29, 411–433 (2004). https://doi.org/10.1023/B:REAL.0000044021.07237.42
Issue Date:
DOI: https://doi.org/10.1023/B:REAL.0000044021.07237.42