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A Fistful of Dollars

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  • Deniz Igan
  • Thierry Tressel
  • Prachi Mishra

Abstract

Using detailed information on lobbying and mortgage lending activities, we find that lenders lobbying more on issues related to mortgage lending (i) had higher loan-to-income ratios, (ii) securitized more intensively, and (iii) had faster growing portfolios. Ex-post, delinquency rates are higher in areas where lobbyist'' lending grew faster and they experienced negative abnormal stock returns during key crisis events. The findings are robust to (i) falsification tests using lobbying on issues unrelated to mortgage lending, (ii) a difference-in-difference approach based on state-level laws, and (iii) instrumental variables strategies. These results show that lobbying lenders engage in riskier lending.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/287.

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Length: 71
Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/287

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Keywords: Corporate sector; Economic models; Financial institutions; Financial sector; Global Financial Crisis 2008-2009; Governance; Housing; mortgage; mortgage lending; predatory lending; mortgages; consumer protection; mortgage loans; mortgage loan; consumer protection laws; mortgage market; mortgage lenders; predatory mortgage lending practices; high cost mortgages; mortgage credit; predatory mortgage lending; mortgage insurance; home loans; annual percentage rates; home ownership; housing mortgage; homeownership; mortgage loan portfolios; adjustable rate mortgage; home mortgage; housing finance; mortgage default; annual percentage rate; consumer mortgage; foreclosures; consumer credit; foreclosure; mortgage association; consumer reporting; residential mortgage; mortgage-backed securities; mortgage creditors; credit reporting; mortgage debt; adjustable rate mortgages; mortgage products; housing finance reform; mortgage payments; consumer loans; home ownership counseling; mortgage product; monthly payment; conventional mortgages; consumer debt; conventional mortgage; government national mortgage association; federal national mortgage association; credit history; consumer reporting agencies; mortgage corporation; housing finance agency; consumer responsibilities; mortgage portfolio; credit counseling services; monthly income; credit score; secondary mortgage; mortgage broker;

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References

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Citations

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Cited by:
  1. Jordi Blanes i Vidal & Mirko Draca & Christian Fons-Rosen, 2011. "The Power of K Street: New Research on the Economics of Lobbying," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(1), pages 8-11, 05.
  2. Devesh Kapur, Milan Vaishnav, 2011. " Quid Pro Quo: Builders, Politicians, and Election Finance in India- Working Paper 276," Working Papers 276, Center for Global Development.
  3. Mian, Atif & Sufi, Amir & Trebbi, Francesco, 2013. "The Political Economy of the Subprime Mortgage Credit Expansion," International Quarterly Journal of Political Science, now publishers, vol. 8(4), pages 373-408, October.
  4. Ben Beachy, 2012. "A Financial Crisis Manual Causes, Consequences, and Lessons of the Financial Crisis," GDAE Working Papers 12-06, GDAE, Tufts University.
  5. Rodney Ramcharan & Rajan G. Raghuram, 2012. "Constituencies and legislation: the fight over the McFadden Act of 1927," Finance and Economics Discussion Series 2012-61, Board of Governors of the Federal Reserve System (U.S.).
  6. Stijn Claessens & Luc Laeven & Deniz Igan & Giovanni Dell'Ariccia, 2010. "Lessons and Policy Implications From the Global Financial Crisis," IMF Working Papers 10/44, International Monetary Fund.
  7. Erlend Nier & Luis Ignacio Jácome & Jacek Osinski & Pamela Madrid, 2011. "Towards Effective Macroprudential Policy Frameworks," IMF Working Papers 11/250, International Monetary Fund.
  8. Connor, Gregory & Flavin, Thomas & O’Kelly, Brian, 2012. "The U.S. and Irish credit crises: Their distinctive differences and common features," Journal of International Money and Finance, Elsevier, vol. 31(1), pages 60-79.
  9. Khemraj, Tarron & Hinova, Diana, 2011. "Elected Oligarchy and Economic Underdevelopment: The Case of Guyana," MPRA Paper 29733, University Library of Munich, Germany.
  10. Mario Tonveronachi, 2010. "Financial innovation and system design," PSL Quarterly Review, Economia civile, vol. 63(253), pages 131-144.
  11. Blau, Benjamin M. & Brough, Tyler J. & Thomas, Diana W., 2013. "Corporate lobbying, political connections, and the bailout of banks," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3007-3017.
  12. repec:hal:cepnwp:hal-00613251 is not listed on IDEAS

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