Abstract
This paper uses the universe of mortgage contracts to estimate the response of high-interest lenders to borrower protection regulations aimed at simplifying and making loan terms more transparent. Using a quasi-experimental design, I find that lenders substantially reduce interest rates – by an average of 10% – in order to avoid being subject to borrower protection, without reducing amounts lent or the number of loans approved. This finding is consistent with high-interest lenders preferring to issue obfuscatory mortgage contracts with lower interest rates rather than more transparent and regulated mortgages with higher interest rates.
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© 2022 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
2022
The President and Fellows of Harvard College and the Massachusetts Institute of Technology
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