Borrower Self-Selection, Underwriting Costs, and Subprime Mortgage Credit Supply

In the U.S., households participate in two very different types of credit markets. Personal lending is characterized by continuous risk-based pricing in which lenders offer households a continuous distribution of borrowing possibilities based on estimates of their creditworthiness. This contrasts sharply with mortgage markets where lenders specialize in specific risk categories of borrowers and mortgage supply is stepwise linear. The contrast between continuous lending for personal loans and discrete lending by specialized lenders for mortgage credit has led to concerns regarding the efficiency and equity of mortgage lending. This paper sheds both theoretical and empirical light on the differences in the two credit markets. The theory section demonstrates why, in a perfectly competitive credit market where all lenders have the same underwriting technology, mortgage credit supply curves are stepwise linear and lenders specialize in prime or subprime lending. The empirical section then provides evidence that borrowers are being effectively sorted based on risk characteristics by the market

Subprime Lending In the Primary and Secondary Mortgage Market

This article provides an exploratory analysis of the role of subprime lending through an examination of the spatial distribution of Federal Housing Administration (FHA)—eligible home purchase loans in the primary and secondary mortgage markets. Loan originations are aggregated to the metropolitan statistical area level to examine the proportion of the market served by FHA, prime, and subprime lenders. The article then examines whether subprime lenders hold their loans in portfolio or sell them to private conduits. Primary market results indicate that subprime lenders are more active in cities with worse economic risk characteristics. Secondary market results indicate that although subprime lenders sell most loans, they are more likely to hold loans in portfolio when economic risks are improving in historically high-risk locations. Finally, when more loans are originated in underserved census tracts, subprime lenders are much more likely to hold loans in portfolio

Lenders Couldn't Buy Laws

Examines the sources of contributions in support of and in opposition to 2008 ballot measures in Arizona and Ohio on allowing and limiting payday lending, respectively. Discusses the roles of out-of-state and individual donors

Beneficial "firm runs"

The author argues that runs, which are generally considered undesirable, also have a beneficial effect--improving lenders' monitoring incentives. Lenders' ability to run on the firm helps control its moral hazard problem, while the first-come, first-served aspect of asset distribution keeps lenders from wanting to free ride on the monitoring efforts of others.Bankruptcy ; Bank loans

Small Business Fintech Lending: The Need for Comprehensive Regulation

The 28.7 million small businesses in the United States—99% of all American businesses—are the backbone of the American economy. Historically, small businesses relied on community banks for their credit needs. Over the last decade, however, small businesses increasingly have turned to “fintech” lenders—nonbank lenders that are largely unregulated. Nonbank consumer lending is governed by consumer protection statutes, but nonbank small business lending is outside of any clear regulatory framework that would protect borrowers from potentially predatory practices. This Article argues that the optimal regulatory regime is a combination of both state authority over fintech lenders and inclusion of small business borrowers in federal consumer protection statutes

Loan Guarantee Provisions in the 2007 Energy Bills: Does Nuclear Power Pose Significant Taxpayer Risk and Liability?

Loan guarantees are used by the federal government to promote key areas of industry and encourage commercial development. By offering a guarantee on a loan, the federal government provides financial security for borrowers in sectors that are often considered too risky for lenders. The Government Accountability Office (GAO) says, "Federal loan guarantee programs help borrowers get credit from private sector lenders -- the federal government guarantees to pay lenders if the borrowers default on loans, which makes extending credit more attractive to lenders." Title XVII of the Energy Policy Act of 2005 (EPACT 05, P.L.109-58), gives the Department of Energy (DOE) authority to offer loan guarantees for new and innovative technologies that avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases and are not currently in commercial use for energy production. Eligible technologies include renewable energy, energy efficiency, advanced nuclear and fossil, and carbon capture and sequestration, to name a few