How Do Predatory Lending Laws Influence Mortgage Lending in Urban Areas? A Tale of Two Cities

This paper examines the effects of predatory lending laws in the cities of Chicago and Philadelphia. The level of mortgage activity in each of the cities is compared during the pre- and post-legislative periods relative to other parts of the state to assess the impact of localized legislation. In Chicago, where the predatory lending law focused on banks, a subprime origination in the city was found to be more likely to be made by a nonbank after the passage of the law. In Philadelphia, however, where the predatory legislation was aimed at all financial service providers, a decline was observed in the likelihood of a subprime loan being originated in the city during the post-legislation period, with the minority and low-income market segments experiencing the largest reduction.

Student Perceptions and Learning Outcomes: Evidence from the Education Testing Service (ETS) Major Field Test in Business

We examine course evaluation data from the core finance course and analyze how these data relate to performance on the finance portion of the Educational Testing Service Major Field Test in Business (ETS). We find that gender, SAT scores, GPA and concentration all have significant impacts on student performance. We also find that student perceptions of teaching and of how much knowledge they gained do not relate to the finance ETS score. Finally, we find that students who feel challenged in their finance core course do significantly better on the finance portion of the exam. This result is robust to different data partitions

Enhanced tunneling conductivity induced by gelation of attractive colloids

We show that the formation of a gel by conducting colloidal particles leads to a dramatic enhancement in bulk conductivity, due to inter-particle electron tunneling, combining predictions from molecular dynamics simulations with structural measurements in an experimental colloid system. Our results show how colloidal gelation can be used as a general route to huge enhancements of conductivity, and suggest a feasible way for developing cheap materials with novel properties and low metal content.Comment: 8 pages, 8 figures, 2 table

The Influence of Bureau Scores, Customized Scores and Judgmental Review on the Bank Underwriting Decision-Making Process

In recent years commercial banks have moved toward automated forms of underwriting. This study employs unique bank loan-level data from a scoring lender to determine whether automated underwriting exhibits a potential ‘‘disparate impact’’ across income strata. The findings indicate that strict application of this custom scoring model leads to higher denial rates for low- to moderate-income borrowers when compared with both a naý¨ve judgmental system and a bureau scoring approach. These results suggest that financial regulators should focus more resources on the evaluation and study of customized scoring models.

Securitization of Small Business Loans

This paper assesses the potential impact of securitization in improving small businesses’ access to credit. It begins by examining the nature of small business lending and the factors that make banks the primary providers of credit to small businesses. The paper then examines the conditions under which the benefits of securitization are fully realized and whether the nature of small business lend­ing satisfies those conditions. We argue that certain characteristics of small firm finance, especially information problems and the need for ongoing monitoring, are likely to mitigate the full benefits of securitization, that is, the substantial funding cost advantages. Specifically, loan buyers will demand substantial levels of loss protection to compensate for their uncertainty over the returns on the underlying credits and to leave intact the seller’s incentive to monitor properly the loans sold. Loss protection, however, will reduce or eliminate any funding cost advantages, including capital cost reductions. In the absence of lower funding costs, banks are unlikely to undertake substantial new lending to small busi­nesses. Securitizations of small business loans could still take place, but they are likely to be undertaken for special purposes rather than as a primary funding mechanism

Commercial lending distance and historically underserved areas

We study recent changes in the geographic distances between small businesses and their bank lenders, using a large random sample of loans guaranteed by the Small Business Administration. Consistent with extant research, we find that small borrower-lender distances generally increased between 1984 and 2001, with a rapid acceleration in distance beginning in the late-1990s. We also document a new phenomenon: a fundamental reordering of borrower-lender distance by the borrowers' neighborhood income and race characteristics. Historically, borrower-lender distance tended to be shorter than average for historically underserved (for example, low-income and minority) areas, but by 2000 borrowers in these areas tended to be farther away from their lenders on average. This structural change is coincident in time with the adoption of credit scoring models that rely on automated lending processes and quantitative information, and we find indirect evidence consistent with this link. Our findings suggest that there has been increased entry into local markets for small business loans and this should help allay fears that movement toward automated lending processes will reduce small businesses' access to credit in already underserved markets.

Commercial Bank Small Business Lending Pre and Post Crisis

We analyze small business lending at U.S. commercial banks, how it has changed over time and how it differs by bank size. Specifically, we examine the impact of government policy intervention on small business lending in the aftermath of the financial crisis. We find several important results. First, we find that the Troubled-Asset Relief Program’s (TARP) $200 billion Capital Purchase Program (CPP) had little impact on the banks that received capital injections’ small business lending. Second, the Small Business Loan Fund (SBLF) lending program appears to have been a success as banks participating in the loan fund increased their lending to small businesses. Finally, we find that financial turmoil had a substantial negative impact on lending to small businesses at community banks but not their large bank counterparts. This result suggests that the larger banks may have behaved in a manner consistent with too big to fail. Collectively, these results provide important insights for policy makers as they continue to deal with the credit access issues of small firms

Some Evidence On The Secondary Market Trading Of Syndicated Loans

An important recent development in U. S. capital markets is the tremendous growth in the secondary market trading of syndicated loans. This paper uses a unique trading data set for syndicated loans over the period 1997 to 2003 to empirically investigate two major issues. First, we present a statistical overview of the recent growth in the secondary market trading of syndicated loans. Second, we examine the determinants of which syndicated loans are most likely to be traded in the secondary market using binomial logistic regression models. We find that syndicated loans that are larger, have longer maturities, are underwritten by larger syndicates, and are used for debt repayment, takeovers, and leveraged buyouts are more likely to be traded. Lender reputation plays an important role as well, with loans originated by very active lenders more likely to be traded.  We also find that syndicated loans made to borrowers with only senior debt ratings are more likely to be traded in the secondary market than loans made to borrowers with both a debt rating and equity that trades in a stock exchange. This result most likely reflects the growing demand of institutional investors for the higher yields of levered and highly levered syndicated loans made to riskier opaque borrowers with less available market information

Small Business Lending and Social Capital: Are Rural Relationships Different?

We test whether rural versus urban location, and the amount of social capital present in those locations, influence the performance of Small Business Administration (SBA) 7(a) loans originated between 1984 and 2012. On average, we find that rural loans are about 11% less likely to default than urban loans, and that a standard deviation increase in social capital reduces default by about 5%. Surprisingly, these two effects are largely independent of each other, even though social capital is substantially higher in rural places than in urban places. Our findings advance the small business lending literature and offer insights for a more efficient allocation of SBA funds

A Relationship Among Neighborhood Traits, Home Sales and Mortgage Fraud: The Atlanta Market Leading into the Mortgage Crash of 2008

The U.S. Federal Bureau of Investigation (FBI) categorizes mortgage fraud as either fraud for property or fraud for profit. Fraud for profit, which includes the vast majority of cases, may involve several parties to the transaction, including professional agents such as brokers, appraisers, builders, title examiners, escrow officers, attorney, and lenders. Fraud for profit schemes usually include several purchase transactions where homes are quickly sold, with lenders and subsequent purchasers suffering the losses. Reports of mortgage loan fraud grew exponentially in the years leading up to the 2008 financial crisis, becoming one the fastest growing white-collar crimes in the United States. We examine simple correlates between mortgage fraud and the economic, credit and loan traits within the Atlanta zip codes. First, the findings for Atlanta suggest that higher home values and a lower rate of owner-occupancy lead to higher levels of mortgage fraud. Second, we find that mortgage fraud is not correlated with the proportion of non-bank lenders in a zip code. Third, we find that zip codes with more trying economic conditions, at least as measured by the unemployment rate in each zip code territory, are positively correlated with higher levels of fraud. Finally, surprisingly we find no correlation between the historic zip code level default rate and the prevalence of mortgage fraud