Playing Hide and Seek: How Lenders Respond to Borrower Protection
This paper uses the universe of mortgage contracts to estimate the response of high-interest lenders to borrower protection regulations aimed at simplifying and making loan terms more transparent. Using a quasi-experimental design, we find that lenders substantially reduce interest rates – by an average of 10% – in order to avoid being subject to borrower protection, without reducing amounts lent or the number of loans approved. This finding implies that a substantial number of high-interest lenders prefer to issue obfuscatory mortgage contracts with lower interest rates rather than more transparent and regulated mortgages with higher interest rates.
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Copy CitationYoussef Benzarti, "Playing Hide and Seek: How Lenders Respond to Borrower Protection," NBER Working Paper 26382 (2019), https://doi.org/10.3386/w26382.
Published Versions
Youssef Benzarti, 2024. "Playing Hide and Seek: How Lenders Respond to Borrower Protection," Review of Economics and Statistics, vol 106(2), pages 384-393. citation courtesy of