Journal of Real Estate Finance and Economics, 29:4, 435±456, 2004 # 2004 Kluwer Academic Publishers. Manufactured in The Netherlands. Do Predatory Lending Laws In¯uence Mortgage Lending? An Analysis of the North Carolina Predatory Lending Law KEITH D. HARVEY Boise State University, Boise, Idaho E-mail: kharvey@boisestate.edu PETER J. NIGRO Bryant College, Sarkisian Chain, Finance Department, Smith®eld, RI 02917 Abstract Inthispaper,weexaminetheeffectofthe1999NorthCarolinapredatorylendinglawonmortgageactivityinthat state as compared to other states in the Southeastern United States. Using 1998±2000 Home Mortgage Disclosure Act (HMDA) data, we ®nd that the North Carolina law reduced the overall level of subprime mortgage lending activity. Furthermore, we ®nd that the North Carolina decline was causedby a decline in loan application volume and not by a change in loan denial rates, suggesting less aggressive marketing in that state after the imposition of the law. Finally, the impact of the legislation was different by both the type of ®nancial service provider and borrower. Speci®cally, non-bank subprime lending contracted faster in North Carolina when compared to the control group, while both minority and low-income applicants were also less likely to get loans following the legislation. These results have wide ranging policy implications given that several predatory lending proposals are currently before Congress, as well as proposed in almost forty other states. KeyWords: predatory lending, mortgages, government regulation 1. Introduction Over the past decade, borrowers with limited or impaired credit histories have experienced a tremendous expansion in their access to credit as both new and traditional lenders became aware of the pro®t potential of the previously untapped market for subprime credit. Banks and other ®nancial service providers have become active players in this market due to both the robust economy and to increasing competition and shrinking margins on loans to high-quality borrowers. Borrowers in the subprime market have bene®ted from the increased entry into this traditionally underserved market, while some ®nancial service providers have enhanced their earnings through higher fees and rates and by their ability to cross-sell other products and services. There is a growing body of anecdotal evidence that suggests that a subset of subprime lenders engage in abusive or ``predatory'' lending practices that strip subprime borrowers of their equity and increase the risk of foreclosure. It has also been argued that these predatory practices exploit lower income, minority, and elderly borrowers, where