Predatory lending and the subprime crisis

Sumit Agarwal; Gene Amromin; Itzhak Ben-David; Souphala Chomsisengphet; Douglas D. Evanoff

doi:10.1016/j.jfineco.2014.02.008

Journal of Financial Economics Vol. 113 No. 1 2014

Predatory lending and the subprime crisis

Sumit Agarwal^1,2; Gene Amromin^1,3,4; Itzhak Ben-David; Souphala Chomsisengphet¹; Douglas D. Evanoff^1,2

¹ National Bureau of Economic Research · ² Federal Reserve Bank of Chicago · ³ Fisher College · ⁴ The Ohio State University

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Abstract

We measure the effect of a 2006 antipredatory pilot program in Chicago on mortgage default rates to test whether predatory lending was a key element in fueling the subprime crisis. Under the program, risky borrowers or risky mortgage contracts or both triggered review sessions by housing counselors who shared their findings with the state regulator. The pilot program cut market activity in half, largely through the exit of lenders specializing in risky loans and through a 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.

DOI: 10.1016/j.jfineco.2014.02.008
Volume: 113
Issue: 1
Pages: 29-52
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Predatory lending and the subprime crisis

Abstract

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