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To change or not to change: the impact of the law on mortgage origination

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  • Sá, Ana Isabel

Abstract

Differences in mortgage law have significant effects on loan characteristics at origination. Borrower-friendly laws impose higher costs and risks for lenders and, thus, induce effects on mortgage pricing and leverage. However, not all borrower-friendly laws have the same effects.This finding is established using loan-level data for the U.S. mortgage market between 2001 and 2011. Judicial foreclosure requirements imply higher mortgage interest rates due to higher recovery costs and activate the price channel. Recourse restrictions imply higher loan collateralization to compensate for the fewer recovery opportunities and activate the collateral channel.

Suggested Citation

  • Sá, Ana Isabel, 2020. "To change or not to change: the impact of the law on mortgage origination," MPRA Paper 104818, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:104818
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    More about this item

    Keywords

    mortgage; mortgage law; interest rate; mortgage pricing; judicial foreclosure; nonrecourse; loan-to-value ratio; credit supply;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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