The study, from the Center for Responsible Lending, analyzed three-quarters of the loans originated in the subprime market (more than six million) from 1998 through 2004 and found that the states with the strongest laws (Massachusetts, New Jersey, New Mexico, New York, North Carolina, and West Virginia) had “the largest declines in loans with predatory terms,” the announcement said, while predatory loans in states that have predatory lending reforms dropped by almost a third.

The group’s researchers also found that interest rates for subprime mortgages are the same or even lower in states with predatory lending regulation, the announcement said.

“This study demonstrates that critics who claim anti-predatory lending laws will dry up people’s access to credit are just plain wrong,” Iowa Attorney General Tom Miller said in the press release. “This research shows that sound legislation curbs abusive lending, and it does not reduce responsible lending.”

But one area of contention, the value of a prepayment penalty in relation to predatory lending, conflicts between the center’s report and one by Richard DeMong, a University of Virginia Researcher and Professor. DeMong’s study of 960,000 loan applications in 2004 revealed that loans with “prepayment fees were 38 basis points below risk-adjusted loans without prepayment fees.” He noted that the fees are a mechanism for borrowers to save money, not a form of penalty.

The study, Prepayment Fees Lead to Lower Interest Rates, conducted by DeMong and colleague James Burroughs, was funded by the National Home Equity Mortgage Association and published in the Equity Journal, DeMong said.

“We need to prevent predatory lending but we shouldn’t arbitrarily take away an option that would be beneficial to borrowers,” DeMong told

Mortgage Bankers Association Senior Vice President of Government Affairs Kurt Pfotenhauer told in an e-mailed statement that the MBA is in the process of reviewing the report from both an economic and policy perspective.

“MBA condemns abusive lending practices, and believes a uniform national standard for abusive lending will not only protect consumers, but protect the strong availability of credit that our nation currently enjoys,” Pfotenhauer said. “MBA is concerned that as lenders are required to comply with numerous state and local abusive lending laws, the costs to comply with the varying laws will deter them from doing business in certain states and localities.”

Opportunity Finance Network President and CEO Mark Pinsky told that all the data he has seen indicates that the center’s study is true and accurate. “I think it’s good research,” he said. “All the data is consistent to this point; this market is shaking itself out and cleaning itself up.”


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