States with strong anti-predatory lending laws fared better during the foreclosure crisis than states without these laws, according to a new study conducted by the University of North Carolina at Chapel Hill's Center for Community Capital.
The study also found that after the federal government exempted national banks from state anti-predatory lending laws in 2004, national banks increased their subprime lending, especially in states where other lenders remained subject to strict anti-predatory lending laws.
The study, “State Anti-Predatory Lending laws: Impacts and Federal Preemption,” found specifically that:
- 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 laws were less risky. In these states, average credit scores were higher, and average debt to income ratios and loan-to-value ratios were lower.
- National banks showed a marked increase in subprime lending following federal exemption. The biggest jump (from 9 percent to 20 percent) occurred in those states where national banks had been subject to stricter laws until 2004, but after that date, gained a competitive advantage against other lenders who remained subject to higher state standards.
The study was funded by the North Carolina Department of Justice and the National State Attorneys General Program at Columbia University. Read more findings in the news release.
