STUDY: Federal Pre-emption of State Anti-Predatory Lending Laws Led to More Mortgage Defaults A new research report out of University of North Carolina at Chapel Hill looks at the impact of federal preemption of state Anti-Predatory Lending laws. The key factor was the decision by the Bush White House in 2004 to preempt state lending standards. You will be not be surprised at the net results. States that have Anti-Predatory Lending (APL) laws are associated with a lower rate of mortgage defaults than non-APL states. Typically, Anti-Predatory Lending laws require verification of borrowersâ repayment ability, as well as include limits on fees, rates and prepayment penalties. States without these restrictions and verification requirements have higher default rates. The report concluded that in States where the APLs ârequire a lender to consider a borrowerâs ability to pay and ban prepayment penaltiesâ there are âsignificantly lower default rates.â Why did the US preempt state APL laws? There was the ideological belief that states were interfering with profits and âfinancial innovation:â In February 2004, the Bush White House, working through the Office of the Comptroller of the Currency (OCC) officially preempted national banks from state laws regulating mortgage credit, including state anti-predatory lending laws. http://www.ritholtz.com/blog/2009/1...datory-lending-laws-led-to-more-foreclosures/