Working Paper: NBER ID: w18965
Authors: 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.
Keywords: subprime lending; congressional influence; mortgage credit; political economy
JEL Codes: G21; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| congressional leadership (D72) | subprime loan origination (G21) |
| congressional leadership (D72) | mortgage pricing (G21) |
| congressional leadership (D72) | loan amounts for black borrowers (G51) |
| New Century donations to congressional representatives (D64) | mortgage interest rate discounts (G21) |
| congressional attributes (D72) | access to subprime mortgage credit (G21) |
| borrower characteristics (G51) | subprime loan origination (G21) |
| local economic conditions (R11) | subprime loan origination (G21) |