State and local anti-predatory lending laws: The effect of legal enforcement mechanisms

Subprime mortgage lending has grown rapidly and so has enactment of state anti-predatory lending laws. Our analysis suggests that anti-predatory lending laws influence subprime market dynamics and that disaggregating them into component parts is essential for understanding their market impact. Restrictions, coverage, and enforcement provisions all have significant relationships with subprime outcomes, the latter being a new finding. One finding, that broader coverage is associated with higher subprime origination likelihoods, is consistent with a reverse lemons hypothesis. There is also evidence that newer mini-HOEPA laws affect the subprime market above and beyond the older preexisting laws, particularly for subprime originations.