A previous version of this working paper was originally published in 2015.

In this paper, the authors study how the law change affected lenders’ decisions to grant mortgages and borrowers’ decisions to apply for them and subsequently default. Using unique mortgage loan-level application and performance data, the authors find evidence that lenders tightened their lending standards for mortgages affected by the new legislation. In particular, lenders reduced approval rates and loan sizes for mortgages after implementation of the law. Borrowers also increased the loan size at application after the law change but the total number of loan applications did not increase. Finally, the law change did not appear to have affected borrowers’ default decisions though the power of the test may be limited due to the overall low loan default rates at the time.