Mortgages
Paper Session
Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)
- Chair: Philip Lewis Kalikman, University of Cambridge
The Cost of Privacy: The Impact of the California Consumer Protection Act on the Mortgage Markets
Abstract
We study how compliance costs of a data privacy law, the California Consumer Protection Act (CCPA), affects mortgage finance. Lenders pass compliance costs to borrowers by raising interest rates, making the average prime mortgage costlier by $4,350. The CCPA imposes compliance costs of $880,000 on the average bank, while nonbanks share the costs with government-sponsored enterprises. Although loan risk increases, competition from nonbanks prevents banks from pricing the risk. Banks respond by reducing credit by 3.4%. The fixed compliance burden creates economies of scale in lending, leading to regressive credit. Market-based finance crowds out bank finance due to the compliance costs.The Impact of Fair Lending Litigation on Mortgage Markets
Abstract
Does fair lending litigation impact mortgage lender decisions? We answer this question in the affirmative, using a novel dataset of all fair lending legal actions from 1991 to 2017. We find that, in the wake of legal settlements for discrimination against Black borrowers, lenders significantly reduced denial rates for Black applicants. The reductions near-fully offset pre-litigation racial disparities in denial rates by litigated banks, relative to those banks' competitors. Origination rates for Black applicants also increased post-litigation. We further observe evidence of a spillover effect on the approval decisions of non-litigated banks operating in the same city as a litigated bank. Altogether, the evidence suggests that the enforcement of fair lending laws is an effective tool to reduce racial discrimination in credit markets.How Do Banks Compete with Non-Banks in the Conforming Residential Mortgage Market? The Role of Balance Sheet
Abstract
We find evidence that banks respond to increasing non-bank competition in the post-2012 conforming residential mortgage market by making use of their balance sheet financing capability and the cross-subsidization in the GSE pricing schemes. Loan retention decision post 2012 is in stark contrast with that before 2012 when non-bank competition was only modest. Banks retain on their balance sheets higher proportions of low-risk conforming mortgages for which the guarantee-fees might be high relative to these loans’ credit risk, and banks have been keeping increasingly higher fractions of such mortgages over time. Finally, banks charge lower interest rates on mortgages retained on their balance sheets relative to those sold to the GSEs.Discussant(s)
Aditya Aladangady
,
Federal Reserve Board
Jeanna Helen Kenney
,
University of Pennsylvania
Andreas Christopoulos
,
Yeshiva University
Carolin Hoeltken
,
University of Cambridge
JEL Classifications
- G2 - Financial Institutions and Services