Congressional Influence as a Determinant of Subprime Lending

30 Pages Posted: 9 Apr 2013 Last revised: 21 Jan 2015

See all articles by Stuart A. Gabriel

Stuart A. Gabriel

University of California, Los Angeles - Anderson School of Management

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Ryan Vaughn

University of California, Los Angeles (UCLA)

Date Written: December 15, 2014

Abstract

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

Gabriel, Stuart A. and Kahn, Matthew E. and Vaughn, Ryan, Congressional Influence as a Determinant of Subprime Lending (December 15, 2014). Journal of Housing Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2247060 or http://dx.doi.org/10.2139/ssrn.2247060

Stuart A. Gabriel (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-2922 (Phone)
310-206-5455 (Fax)

HOME PAGE: http://www.anderson.ucla.edu

Matthew E. Kahn

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ryan Vaughn

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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