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Congressional Influence as a Determinant of Subprime Lending

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  • Stuart A. Gabriel
  • Matthew E. Kahn
  • Ryan K. Vaughn

Abstract

We apply unique loan level data from New Century Financial Corporation, a major subprime lender, to assess whether attributes of Congressional Representatives were associated with access to and pricing of subprime mortgage credit. Research findings indicate higher likelihoods of subprime loan origination and lower mortgage pricing among borrowers represented by the Republican and Democratic leadership of Congress. Black borrowers also benefitted from significantly larger loan amounts in those same districts. Also, borrowers received mortgage interest rate discounts in districts where New Century donated to the Congressional Representative. Findings provide new insights into the political geography of the subprime crisis and suggest gains to trade between New Century Financial Corporation and targeted Congressional Representatives in the extension, pricing and sizing of subprime mortgage credit.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18965.

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Date of creation: Apr 2013
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Handle: RePEc:nbr:nberwo:18965

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  1. Bronars, Stephen G & Lott, John R, Jr, 1997. "Do Campaign Donations Alter How a Politician Votes? Or, Do Donors Support Candidates Who Value the Same Things That They Do?," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 317-50, October.
  2. Chris Mayer & Karen Pence, 2008. "Subprime mortgages: what, where, and to whom?," Finance and Economics Discussion Series 2008-29, Board of Governors of the Federal Reserve System (U.S.).
  3. Stratmann, Thomas, 2002. "Can Special Interests Buy Congressional Votes? Evidence from Financial Services Legislation," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 345-73, October.
  4. Atif Mian & Amir Sufi & Francesco Trebbi, 2008. "The Political Economy of the U.S. Mortgage Default Crisis," NBER Working Papers 14468, National Bureau of Economic Research, Inc.
  5. Stratmann, Thomas, 1992. "Are Contributions Rational? Untangling Strategies of Political Action Committees," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 647-64, June.
  6. Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder Jr, 2003. "Why is There so Little Money in U.S. Politics?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 105-130, Winter.
  7. Christopher J. Mayer & Karen Pence, 2008. "Subprime Mortgages: What, Where, and to Whom?," NBER Working Papers 14083, National Bureau of Economic Research, Inc.
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  1. My Recent Political Economy Work
    by Matthew Kahn in Environmental and Urban Economics on 2013-05-08 00:54:00

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