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The Subprime Crisis: Is Government Housing Policy to Blame?

Author

Listed:
  • Robert B. Avery

    () (Board of Governors of the Federal Reserve System)

  • Kenneth P. Brevoort

    () (Board of Governors of the Federal Reserve System)

Abstract

Some have suggested that housing policy, embodied by the Community Reinvestment Act (CRA) and affordable housing goals of the government-sponsored enterprises (GSEs), caused the subprime crisis. We examine if these programs led to worse mortgage outcomes using two approaches. The first examines whether more activity by CRA-covered lenders, or more loan sales to the GSEs, was associated with worse outcomes. The second uses regression discontinuity to determine if outcomes were worse at the geographic thresholds used by each program. Our results suggest that neither program played a significant role in the subprime crisis. © 2015 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Robert B. Avery & Kenneth P. Brevoort, 2015. "The Subprime Crisis: Is Government Housing Policy to Blame?," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 352-363, May.
  • Handle: RePEc:tpr:restat:v:97:y:2015:i:2:p:352-363
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    References listed on IDEAS

    as
    1. Peter J. Wallison, 2011. "Dissent from the Majority Report of the Financial Crisis Inquiry Commission," Books, American Enterprise Institute, number 50848, May.
    2. Robert B. Avery & Marsha J. Courchane & Peter M. Zorn, 2009. "The CRA within a changing financial landscape," Monograph, Federal Reserve Bank of San Francisco, number 2009tcwacf.
    3. Robert B. Avery & Kenneth P. Brevoort & Glenn B. Canner, 2007. "Opportunities and Issues in Using HMDA Data," Journal of Real Estate Research, American Real Estate Society, vol. 29(4), pages 351-380.
    4. repec:aei:rpbook:24944 is not listed on IDEAS
    5. repec:aei:rpaper:26126 is not listed on IDEAS
    6. Alan Greenspan, 2010. "The Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 201-261.
    7. Peter J. Wallison, 2011. "A dissent from the majority report of the financial crisis inquiry commission," Proceedings 1118, Federal Reserve Bank of Chicago.
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    Citations

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    Cited by:

    1. Cesa-Bianchi, Ambrogio & Rebucci, Alessandro, 2017. "Does easing monetary policy increase financial instability?," Journal of Financial Stability, Elsevier, vol. 30(C), pages 111-125.
    2. Chan, Sewin & Gedal, Michael & Been, Vicki & Haughwout, Andrew, 2013. "The role of neighborhood characteristics in mortgage default risk: Evidence from New York City," Journal of Housing Economics, Elsevier, vol. 22(2), pages 100-118.
    3. Ding, Lei & Nakamura, Leonard I., 2017. "“Don't Know What You Got Till It’s Gone” — The Effects of the Community Reinvestment Act (CRA) on Mortgage Lending in the Philadelphia Market," Working Papers 17-15, Federal Reserve Bank of Philadelphia.
    4. Levitin, Adam & Wachter, Susan, 2012. "Explaining the Housing Bubble," MPRA Paper 41920, University Library of Munich, Germany.
    5. Bhutta, Neil, 2014. "The ins and outs of mortgage debt during the housing boom and bust," Finance and Economics Discussion Series 2014-91, Board of Governors of the Federal Reserve System (U.S.).
    6. Olsen, Edgar O. & Zabel, Jeffrey E., 2015. "US Housing Policy," Handbook of Regional and Urban Economics, Elsevier.
    7. Robert Pollin & James Heintz, 2013. "Study of U.S. Financial System," FESSUD studies fstudy10, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

    More about this item

    Keywords

    housing policy; Community Reinvestment Act; CRA; affordable housing; GSE; subprime; regression discontinuity;

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • I00 - Health, Education, and Welfare - - General - - - General
    • P00 - Economic Systems - - General - - - General
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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