Playing Hide and Seek: How Lenders Respond to Borrower Protection

Youssef Benzarti

The Review of Economics and Statistics, 2024, vol. 106, issue 2, 384-393

Abstract: 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, I find that lenders substantially reduce interest rates—by an average of 10%—in order to avoid being subject to borrower protection, without reducing amounts loaned or the number of loans approved. This finding is consistent with high-interest lenders preferring to issue obfuscatory mortgage contracts with lower interest rates rather than more transparent and regulated mortgages with higher interest rates.

Date: 2024
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https://doi.org/10.1162/rest_a_01167
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Working Paper: Playing Hide and Seek: How Lenders Respond to Borrower Protection (2019)
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