Hierarchical Modeling of Residential Default: Does State Level Foreclosure and Predatory Lending Legislation Limit 'Bad' Loans?

45 Pages Posted: 21 May 2009

See all articles by Allen C. Goodman

Allen C. Goodman

Wayne State University - Department of Economics

Brent C. Smith

Virginia Commonwealth University

Date Written: May 21, 2009

Abstract

A national loan level data set, aggregated at the zip code is used to examine the elasticity of default relative to local demographic characteristics and state level legislation regulating foreclosure procedures and predatory lending. We also illustrate the merit of using a form of hierarchical linear modeling when comparing loan performance at the national level. We observe significant variation in the rate of foreclosure across states. Those states imposing higher temporal and financial costs on financial institutions exhibit lower default levels controlling for loan and local conditions. State level legislative influences provide a foundation for discussion of national level policy that further regulates predatory lending and financial institution foreclosure activities. This is one of many proposed directives for addressing the current mortgage challenges and future borrower lender interaction during potential default.

Keywords: real estate, mortgages, default, policy

JEL Classification: H73, R20, G21, G28

Suggested Citation

Goodman, Allen C. and Smith, Brent C., Hierarchical Modeling of Residential Default: Does State Level Foreclosure and Predatory Lending Legislation Limit 'Bad' Loans? (May 21, 2009). Available at SSRN: https://ssrn.com/abstract=1408212 or http://dx.doi.org/10.2139/ssrn.1408212

Allen C. Goodman

Wayne State University - Department of Economics ( email )

656 W. Kirby
Detroit, MI 48202
United States
313-577-3344 (Phone)
313-577-0149 (Fax)

Brent C. Smith (Contact Author)

Virginia Commonwealth University ( email )

1015 Floyd Avenue
Richmond, VA 23284
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
154
Abstract Views
1,402
rank
258,151
PlumX Metrics