Response to NHEMA's "Analysis of 1st Quarter 2004 Mortgage Lending in New Jersey and Pennsylvania"


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Published: July 18, 2005

On September 15th, 2004, the National Home Equity Mortgage Association (NHEMA) released a report by Professors Richard DeMong and Richard Netemeyer of the University of Virginia that asserts that New Jersey’s Homeownership Protection Act of 2002 has decreased access to credit for non-prime borrowers in the state. The authors assert that non-prime lending was lower and comprised a smaller share of the total mortgage market in New Jersey than in Pennsylvania. In addition, the authors claim that borrowers in New Jersey had, on average, higher incomes and FICO scores than Pennsylvania borrowers. Based on these findings, the authors conclude that the Homeownership Protection Act impaired access to credit for New Jersey borrowers.

This research is seriously flawed. Like other industry-sponsored research on the impact of state anti-predatory lending laws, the findings from NHEMA’s latest report are based on questionable data and a deficient research methodology. Specifically, The NHEMA study relies on a small (and potentially biased) sample of lenders and inexplicably limits the analysis to one comparison state, Pennsylvania. In addition, the authors attribute all observed differences between Pennsylvania and New Jersey to the New Jersey Law, disregarding any differences in baseline lending activity, the demographic characteristics of the two states, or trends in other economic or market conditions. Finally, the study provides no information on changes in the terms of credit in New Jersey since the enactment of the Homeownership Protection Act and, therefore, does not address whether the law has in fact decreased abusive lending practices.