NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Douglas Evanoff

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Working Papers and Chapters

February 2014The Effectiveness of Mandatory Mortgage Counseling: Can One Dissuade Borrowers from Choosing Risky Mortgages?
with Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala Chomsisengphet: w19920
We explore the effects of mandatory third-party review of mortgage contracts on consumer choice—including the terms and demand for mortgage credit. Our study is based on a legislative pilot carried out by the State of Illinois in a selected set of zip codes in 2006. Mortgage applicants with low FICO scores were required to attend loan reviews by financial counselors. Applicants with high FICO scores had to attend counseling only if they chose “risky mortgages.” We find that low-FICO applicants for whom counselor review was mandatory did not materially change their contract choice. Conversely, applicants who could avoid counseling by choosing less risky mortgages did so. Ironically, the ultimate goals of the legislation (e.g., better loan terms for borrowers) were only achieved among the po...
October 2013Predatory Lending and the Subprime Crisis
with Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala Chomsisengphet: w19550
We measure the effect of an anti-predatory pilot program (Chicago, 2006) on mortgage default rates to test whether predatory lending was a key element in fueling the subprime crisis. Under the program, risky borrowers and/or risky mortgage contracts triggered review sessions by housing counselors who shared their findings with the state regulator. The pilot cut market activity in half, largely through the exit of lenders specializing in risky loans and through 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.

Published: Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2014. "Predatory lending and the subprime crisis," Journal of Financial Economics, Elsevier, vol. 113(1), pages 29-52. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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