Study on State Anti-Predatory Lending Laws
As the country continues to feel the impact of the subprime lending crisis, the Program launched an effort to lead a research initiative that is investigating North Carolina’s anti-predatory lending law, now ten years old, in order to analyze a number of questions on the effectiveness of anti-predatory lending laws to protect homeowners. On March 31, 2009, the Program received a grant from the North Carolina Department of Justice in order to pursue this timely initiative.
The research for the project was conducted by the University of North Carolina’s Center for Community Capital, and was headed by Patricia McCoy, Lead Research Scholar.
An initial report of findings was issued in October 2009, showing that States with tough anti-predatory lending laws had lower foreclosure rates than states without those laws. The study also found that after 2004, when the federal government exempted national banks from state anti-predatory lending laws, national banks increased their subprime lending the most in states with those laws. After this loophole opened, national banks made riskier loans, especially in states where other lenders remained subject to strict anti-predatory lending laws.
Specifically, researchers found that:
- States with strong anti-predatory lending laws fared better during the foreclosure crisis. They posted lower delinquency and foreclosure rates than states without such laws. As of June 2008, the foreclosure rate was 12 percent higher in states without anti-predatory lending laws.
- Mortgage loans made in states with strong anti-predatory lending laws were less risky. Average credit scores were higher in states with strong anti-predatory lending laws. In addition, average debt-to-income ratios and loan-to-value ratios were lower in states with strong anti-predatory lending laws.
- National banks showed a marked increase in subprime lending following federal preemption. From 2004 to 2007, national banks dramatically increased their share of the subprime lending market. The biggest jump (from 9 percent to 20 percent) occurred in those states where national banks had been subject to stricter state laws until 2004.
For a full copy of the Final Report, please click here.