Predatory Lending

significantly lowered borrower applications for mortgage credit and that its impact was, in fact,
concentrated among state-licensed lenders.
Next, we use the same method to estimate relative changes in origination activity. As
shown in Table 2, Panel B, we find a decrease of 61% in the total number of mortgage
originations by state-licensed lenders in HB4050 zip codes, with a 68% decline in purchase
mortgages and a 54% decline in mortgage refinance transactions. As with applications, the drop
in originations by state-licensed lenders in control zip codes is much smaller. Although there is a
marginal rise in originations by non-state-licensed lenders, the increase is far too small to
compensate for losses in credit origination by state-licensed lenders. Overall, the difference in
the relative decline in total originations by state-licensed lenders in the treatment area and time
period amounted to 39%. This further underscores our contention that the two sets of lenders
served different segments of the market.
In preparation for the default analysis that follows, we also perform a robustness check of
these results based on the matched sample between the LP data set (which contains default
information) and the HMDA data. The results are reported in Panel C, and they follow exactly
the same pattern. The magnitude of the declines, both relative and absolute, is even stronger in
the matched sample, which is heavily tilted towards state-licensed lenders that originated
subprime loans. For example, the panel shows a 67% drop in originations among such lenders in
treated zip codes, relative to a 14% runoff in the control area.
We also note that the effect of the legislation is more pronounced for refinancing
transactions relative to purchase mortgages. This result is consistent with Choi (2011), who
examines the effect of anti-predatory legislation on origination volumes and finds a small effect
for purchase mortgages and a larger effect for refinancing mortgages. There are two potential
explanations for this result. First, refinancing activity is often discretionary. In particular,
borrowers who refinance a loan can often wait or find alternative sources of financing. For
purchases, however, if a buyer wants to complete the transaction, she usually has to take out a
mortgage in a timely manner. Second, the HB4050 legislation specified frequent refinancing
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