A seminar by Assistant Professor Erik Mayer from University of Wisconsin-Madison
Title: Government Litigation Risk and the Decline in Low-Income Mortgage Lending*
Abstract: This paper explores the effect of U.S. Department of Justice lawsuits in the 2010s against large lenders participating in the Federal Housing Administration mortgage insurance program. The suits led to over $5 billion in settlements and caused targeted banks and their peers to precipitously exit the FHA market. A combination of difference-in differences and triple differences tests exploiting geographic variation in exposure to exiting banks show up to a 20% reduction in aggregate FHA lending in heavily exposed areas. Low-income borrowers were disproportionately affected by the banks’ departure. However, the quality of FHA lending did not improve after litigated banks exited. Our results highlight potential unintended consequences of aggressive consumer financial protection litigation.
*A previous version of this paper was circulated under the title “Fraud Litigation and FHA Mortgage Lending.”
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