EconPapers    
Economics at your fingertips  
 

The Impact of State Foreclosure and Bankruptcy Laws on Higher-Risk Lending: Evidence from FHA and Subprime Mortgage Originations

Qianqian Cao and Shimeng Liu

No 9411, Working Paper from USC Lusk Center for Real Estate

Abstract: State foreclosure and bankruptcy laws govern the rights of mortgage lenders and borrowers during foreclosure and bankruptcy proceedings and therefore impact on lenders’ exposure to credit risk. This paper seeks to understand the effects of these state laws on the type of mortgages originated. The empirical identification is based on state-level variations in foreclosure and bankruptcy provisions and a border estimation strategy. We find that higher-risk loans (FHA and subprime loans) are more likely to be originated in a state with lender-friendly foreclosure laws. Also, higher-risk loans are less likely to be originated in a state with a more generous bankruptcy homestead exemption. In addition, our results are consistent with the idea that FHA and subprime loans share a very similar clientele and are close substitutes. These results are robust without the ordering assumption among conventional prime, FHA and subprime loans.

Keywords: State foreclosure laws; homestead exemption; mortgage originations; ordered probit (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-law, nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://lusk.usc.edu/sites/default/files/The_Impact ... her-Risk_Lending.pdf (application/pdf)

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:luk:wpaper:9411

Access Statistics for this paper

More papers in Working Paper from USC Lusk Center for Real Estate Contact information at EDIRC.
Bibliographic data for series maintained by Chris Steins ().

 
Page updated 2024-07-17
Handle: RePEc:luk:wpaper:9411