Spillover effects of financial deregulation: The unintended consequences of the OCC preemption rule on mortgage lending practices

Di Wu, Abdoul G. Sam and Xiangrui Wang

International Review of Financial Analysis, 2024, vol. 95, issue PC

Abstract: In 2004, the Office of the Comptroller of the Currency (OCC) adopted a preemption rule that clarified and codified the preemption standards applicable to national banks. This study investigates the impact of the federal preemption of state anti-predatory lending (APL) laws on the lending practices of national banks in the home mortgage market and the overstatement of buyer income on mortgages originated by other lending institutions before the 2008 crisis. Utilizing a triple-difference approach, we find that the rule led to OCC-regulated lenders decreasing income requirements by 2.5% and increasing mortgage supply by 6.7% in states with APL laws. Furthermore, our results indicate that the expansion of OCC lenders following the preemption rule exacerbated the issue of income overstatement on mortgages originated by nonbanks and subprime lenders through the channel of competition. Our research highlights the potential unintended consequences of financial deregulation, emphasizing the need for careful consideration of regulatory changes on market dynamics and financial stability.

Keywords: OCC preemption; Income overstatement; Anti-predatory lending laws (search for similar items in EconPapers)
JEL-codes: C23 D18 G21 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924003946
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pc:s1057521924003946

DOI: 10.1016/j.irfa.2024.103462

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().