Do state predatory lending laws work? A panel analysis of market reforms

<title>Abstract</title> We examine the effects of 33 state predatory lending regulatory regimes on the flow and cost of subprime residential mortgage credit. We use the Loan Performance Subprime Asset‐Backed Securities Database to analyze almost 7 million subprime home loans originated between January 1998 and March 2005 to determine whether state laws are having their intended effect of decreasing the prevalence of loan terms targeted for reform without diminishing the overall number of loans or giving rise to undesirable increases in costs. Under current regulatory regimes, we generally find (1) no significant change in the overall flow of subprime residential mortgage credit, (2) a decrease in the proportion of loans with targeted terms, and (3) lower costs to consumers. These findings are important because they suggest that policy makers can address predatory lending in the subprime residential mortgage market without restricting access to credit.