Regulation of subprime mortgage products: An analysis of North Carolina's predatory lending law

This paper estimates the effect of North Carolina's high-cost mortgage law on the subprime mortgage market in that state. The results indicate that creditors sharply restricted lending to higher risk consumers in North Carolina following passage of the law. Creditors did not restrict lending in neighboring states or to lower risk consumers in North Carolina. These results suggest that the restriction in North Carolina was due to rationing in response to higher costs imposed by the law. The findings of this study are of importance beyond North Carolina. Other states and municipalities have proposed or passed similar or more restrictive laws. These laws risk taking back some of the gains in credit availability that lower income and higher risk consumers gained in the 1990s.