The Impact of Federal Preemption of State Antipredatory Lending Laws on the Foreclosure Crisis Lei Ding Roberto G. Quercia Carolina K. Reid Alan M. White Abstract State antipredatory lending laws (APLs) are designed to protect borrowers against predatory lending that can increase the risk of default and deplete the home equity held by borrowers. Federal regulators instituted preemption that limited the scope and reach of state antipredatory lending regulations for certain lenders. Based on the variation in state laws and the variation in the regulatory environment among lenders, this paper identifies the effects of federal preemption of state APLs on the quality of mortgages orig- inated by preempted lenders. The results provide evidence of a relatively higher increase in default risk among loans exempted from strong state antipredatory laws. These re- sults are most robust among refinance mortgages with adjustable interest rates—a large and highly dynamic market in the period of analysis. The findings provide initial evi- dence that preemption of state mortgage lending regulations may result in an increase in mortgage default risk, thus limiting consumer protection in the residential mortgage market. C  2012 by the Association for Public Policy Analysis and Management. INTRODUCTION Federal preemption of state antipredatory lending laws (APLs) has received signif- icant attention in debates over the subprime crisis. APLs adopted in many states were designed to improve upon the federal Home Ownership and Equity Protection Act (HOEPA) enacted in 1994 by adding a layer of consumer protection at the lo- cal level. State APLs are one of the few regulations designed to provide protection against predatory lending, which can increase the risk of default and deplete the home equity held by borrowers. However, federal preemption by the Office of Thrift Supervision (OTS) in 1996 and by the Office of the Comptroller of the Currency (OCC) in 2004 limited the scope and reach of state APLs for certain lenders in- cluding federally chartered thrifts, national banks, and their operating subsidiaries. After preemption, mortgage lenders regulated by the OCC and the OTS were free to disregard most state laws regulating mortgage credit, including APLs, though they remained subject to HOEPA as well as to other regulations enforced by their federal regulators. Journal of Policy Analysis and Management, Vol. 31, No. 2, 367–387 (2012) C  2012 by the Association for Public Policy Analysis and Management Published by Wiley Periodicals, Inc. View this article online at wileyonlinelibrary.com/journal/pam Supporting Information is available in the online issue at wileyonlinelibrary.com. DOI:10.1002/pam.21604