An Analysis of the Impact of Usury Ceilings on Conventional Mortgage Loans

Abstract

Legislatures institute usury ceilings for a variety of reasons. The ceilings are designed to (1) curb excessive profits, (2) lower interest rates and inflation, (3) stimulate housing and growth, (4) subsidize certain consumer groups, and (5) protect the unwary and uninformed. However, in each case, the usury celings set up perverse effects which may defeat these goals. Particularly since the legislatures do not provide for administrative remedies, rationing, or adjustable ceilings, they cannot control these effects. Any reinstitution of ceilings must avoid these problems if the goals of the program are not to be defeated. However, the most effective policy would be to avoid the usury ceilings altogether. Copyright American Real Estate and Urban Economics Association.

Predatory Lending and Community Development at Loggerheads

“…When interest rates are capped, lenders charge borrowers more in up-front fees and require larger down payments, both of which adversely affect people with limited resources. [Tansey, et al, 1981]. Similarly, limits on non-interest rate terms, such as restrictions on points and fees, lead lenders to reduce the number of loans they make and require higher down payments, which, like interest rate caps, impede lending to LMI borrowers.…”