Geographic Consistency of Subprime Loan Features and Foreclosures

Morgan Rose

No 09-113, UMBC Economics Department Working Papers from UMBC Department of Economics

Abstract: The recent rise in subprime foreclosures has prompted restrictions at the federal, state, and municipal levels against a range of loan features loosely termed “predatory.” The effectiveness of federal regulation depends on the consistency of those features’ impacts on foreclosures in markets nationwide. Using data on subprime refinance and purchase mortgages in ten metropolitan areas, I examine the impact of long prepayment penalty periods, balloon payments, and reduced documentation on the probability of foreclosure. Results indicate that reduced documentation is consistently associated with higher probabilities of foreclosure, while the impacts of the other features are more sporadic.

Keywords: subprime mortgages; foreclosure; financial regulation; prepayment penalties; reduced documentation (search for similar items in EconPapers)
JEL-codes: G21 G28 H77 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2009-06-01, Revised 2010-05-01
New Economics Papers: this item is included in nep-ban and nep-ure
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