A new study out today from the University of North Carolina Center for Community Capital provides more evidence that deregulatory zealots have a lot to answer for when it comes to the mortgage crisis: State anti-predatory laws actually worked, slowing down foreclosures.
But, alas, the state protections were overruled by the Office of the Comptroller of the Currency, which gave national banks a pass and said they didn’t have to comply with those laws. And guess what happened next.
States that adopted tough anti-predatory lending laws had lower foreclosure rates than states without those laws, according to a new study conducted by the UNC Center for Community Capital.
In addition, after 2004, when the federal government exempted national banks from state anti-predatory lending laws, national banks increased their subprime lending the most in states with those laws. After this loophole opened in 2004, national banks made riskier loans, especially in states where other lenders remained subject to strict anti-predatory lending laws.
These conclusions suggest that when state laws did apply, the laws did a better job of promoting quality lending.
This study is a perfect reminder, as Congress and the administration tackle financial regulatory reform, that not all regulations are onerous, anti-business, and aimed at choking off financial innovation. And it’s more evidence that borrowers buying beyond their means weren’t the only only players in the subprime mess.
The same banks that found their way around these state anti-predatory laws are the ones getting government bailouts, and financial incentives to modify loans. And bonuses for top employees. The study is an important reminder of their motives and behaviors during the housing boom, at a time when those same banks are lobbying against new reforms.