To change or not to change: the impact of mortgage law on loan origination
Ana Sá – CEF.UP
Concerns on households' over-indebtedness and mortgage default are central in the debate on how to prevent the next crisis. A tempting solution is to change the mortgage law to make it more borrower-friendly and protect households in case of default. With more borrower-friendly laws, the risk and cost of mortgages might increase, leading to a change in the supply of mortgage credit. Intuitively, lenders might react to a risk increase by charging a higher risk premium on loans or by demanding higher collateralization. By taking advantage of U.S. mortgage law heterogeneity across States, I study the direct and indirect effects of different law contexts.
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