Congressional Influence as a Determinant of Subprime Lending
30 Pages Posted: 9 Apr 2013 Last revised: 21 Jan 2015
Date Written: December 15, 2014
We apply unique loan level data from New Century Financial Corporation, a major subprime lender, to explore whether attributes and committee assignments of Congressional Representatives were associated with access to and pricing of subprime mortgage credit. Research findings indicate enhanced credit access at discounted prices among borrowers represented by Congressional leaders and by members of the House Financial Services Committee. Black borrowers in districts represented by Congressional leaders also were more likely to obtain subprime mortgage credit. We do not find evidence of adverse performance differentials among the politically directed loans. Our results conform to those of Agarwal, Amromin, Ben-David and Dinc (2012) in documenting preferential treatment of constituents in congressional districts represented by members of the House Financial Services Committee. Research findings provide new insights into the political geography of the subprime crisis and suggest gains to trade between subprime lenders and targeted Congressional Representatives in the extension and pricing of subprime mortgage credit.
Keywords: subprime crisis, political influence, mortgage contract terms, borrower characteristics
JEL Classification: G21, R21, D40
Suggested Citation: Suggested Citation