THE CRA IMPLICATIONS OF PREDATORY LENDING

This article considers the Community Reinvestment Act\u27s role in combating predatory lending. It provides an overview of the CRA, explains how CRA-covered lenders may enable predatory lending and explores the relationship between the CRA, federal subsidies and predatory lending. The article concludes that the CRA should be used to penalize lenders that engage in predatory lending and recommends that federal bank regulators use CRA to sanction behavior that could encourage further predatory lending

Local Predatory Lending Laws: Going Beyond North Carolina

Following the lead of federal regulations, numerous states, counties and cities have enacted laws designed to reduce predatory lending. There is at least anecdotal evidence that predatory or abusive mortgage lending is primarily concentrated in the subprime market. However, the impact of these local predatory lending laws on the subprime mortgage market is unknown. The primary questions we examine are: do these laws affect the supply and flow of subprime mortgage credit and does the experience in North Carolina, the first state to enact a local predatory lending law, apply to other local laws

Predatory lending in rational world

Regulators express growing concern over “predatory lending,” which we take to mean lending that reduces the expected utility of borrowers. We present a rational model of consumer credit in which such lending is possible, and identify the circumstances in which it arises with and without competition. Predatory lending is associated with imperfect competition, highly collateralized loans, and poorly informed borrowers. Under most circumstances competition among lenders eliminates predatory lending.Predatory lending

The Best Value in the Subprime Market: State Predatory Lending Reforms

To find a model for national legislation, many lawmakers need look no further than their own backyards. People who live in states with strong laws against predatory lending are more likely to get responsible mortgages at a lower cost.Our findings show that state laws enacted to prevent predatory mortgage lending work as intended to reduce abusive loan terms without impeding credit. Strong state laws have been good for consumers while supporting a thriving subprime lending market. They provide credit-strapped families with plenty of access to responsible home loans at typical -- or even lower -- costs. At least 24 states have passed specific anti-predatory lending laws to supplement federal protections aimed at ending abusive mortgage lending practices

Predatory mortgage lending

Regulators express growing concern over predatory loans, which we take to mean loans that borrowers should decline. Using a model of consumer credit in which such lending is possible, we identify the circumstances in which it arises both with and without competition. We find that predatory lending is associated with highly collateralized loans, inefficient refinancing of subprime loans, lending without due regard to ability to pay, prepayment penalties, balloon payments, and poorly informed borrowers. Under most circumstances competition among lenders attenuates predatory lending. We use our model to analyze the effects of legislative interventions.Predatory lending

Understanding Predatory Lending: Moving Toward a Common Definition and Workable Solutions

To date, various parties have used the term "predatory lending" to describe a wide range of abuses. Regulators, industry and advocates have not agreed on a single definition, but have used the term individually to refer to different practices and loan terms. This paper describes predatory lending as a set of loan terms and practices that falls between appropriate risk-based pricing by subprime lenders and blatant fraud. Thus, all subprime lending is not predatory, but typically relies on risk-based pricing to serve borrowers who cannot obtain credit in the prime market. The higher degree of risk associated with subprime borrowers requires a higher cost for a subprime loan. At the other end of the spectrum, cases of blatant fraud are predatory, but less common and can generally be combated with current criminal statutes. The most difficult cases are those in which loan terms seem out of line with standard prices. In particular, high-cost loans coupled with unscrupulous practices that pressure a borrower into a loan are predatory. The paper sets forth three potential regulatory and legislative solutions that may address the issue of predatory lending

Predatory Lending: Practices, Remedies and Lack of Adequate Protection for Ohio Consumers

This note focuses on remedies available to borrowers who fall prey to predatory lending practices on their home equity loans where their homes are used as collateral. Part II gives basic background information on predatory lending: what predatory lending is, examples of common predatory lending techniques, and, who benefits and who is hurt by predatory lending practices. Part III discusses and critiques current federal laws that borrowers have used to combat predatory mortgage lending practices. Part IV explains the current forms of relief available in Ohio and the limitations of these remedies. Part V discusses remedies in other states, focusing on North Carolina and New York. Part VI proposes changes in Ohio law to provide remedies for victims of predatory lending practices

NC's Anti-Predatory Lending Law: Doing What It's Supposed To Do: A Reply

We reply to criticisms of our recent study about North Carolina's Anti-Predatory Lending Law reducing predatory loan terms and preserving access to credit (NC's Anti-Predatory Lending Law: Doing What it's Supposed to Do). To examine whether the decline in overall subprime lending in North Carolina, following passage of the predatory lending law, was due to a decline in loans with legitimate terms or to a reduction in loans with abusive terms, we examined specific market segments and market practices using loan level data from the Loan Performance Asset Backed Securities (ABS) database. Our study revealed that, although the total volume of subprime originations in North Carolina declined, the number of home purchase loans was unaffected by the law. Given the robustness of the LP data, we are baffled by the criticism and disappointed by confusion that has arisen over mistaken data interpretation. For reasons discussed in this paper, we stand by our descriptive study and will continue to use LP data in our future work.Technology and Industry, Regulatory Reform

State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms

Subprime mortgage lending has grown rapidly in recent years and with it, so have concerns about predatory lending. In response to evidence of predatory lending, most states have enacted new laws or expanded existing laws to address abuses in the subprime home loan market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context. The results of the analysis are consistent with the view that anti-predatory lending laws influence subprime lending markets and that disaggregating the details of the overall legal framework into its component parts is essential for understanding subprime market dynamics. The restrictions, coverage, and enforcement components all have significant relationships with subprime market outcomes, with the coverage relationship found to be broadly consistent with the reverse lemons hypothesis put forward by Ho and Pennington-Cross (2007). The results also suggest that the newer mini-HOEPA laws have had an impact on the subprime market above and beyond the older preexisting laws, particularly for subprime originations. Broader coverage through these new laws is associated with higher origination likelihoods, while increased restrictions through the mini-HOEPA laws are associated with lower origination propensities

State Consumer Protection Statutes: An Alternative Approach to Solving the Problem of Predatory Mortgage Lending

This article continues in Part II by defining predatory lending practices, identifying borrowers who are likely to face predatory lenders, and discussing the consequences of predatory lending. Next, Part III provides a background for existing federal regulation, again in reference to RESPA and TILA. Part IV discusses state legislative efforts to curb predatory lending and identifies the problems of inconsistency and federal exemptions that undermine these state statutes. Part V examines the elements of state consumer protection acts and unfair and deceptive acts or practices ( UDAP ) statutes and their application to predatory practices. Part VI argues that, because consumer protection statutes have nearly uniform elements in all states, such statutes provide significant protection for borrowers and have a considerable effect on curbing abuses in the mortgage industry. Thus, consumer protection statutes represent an effective alternative to weakened federal and state predatory lending statutes. Part VII concludes this article with the recommendation that predatory lending victims utilize the protection afforded by state consumer protection and UDAP statutes to hold predatory brokers and lenders responsible for engaging in predatory practices