Borrower Protection and the Supply of Credit
In: IMF Working Papers v.Working Paper No. 14/212
Laws governing the foreclosure process can have direct consequences on the costs offoreclosure and could therefore affect lending decisions. We exploit the heterogeneity inthe judicial requirements across U.S. states to examine their impact on banks' lendingdecisions in a sample of urban areas straddling state borders. A key feature of our study isthe way it exploits an exogenous cutoff in loan eligibility to GSE guarantees which shiftthe burden of foreclosure costs onto the GSEs. We find that judicial requirements reducethe supply of credit only for jumbo loans that are ineligible for GSE gua