Congressional Influence as a Determinant of Subprime Lending

33 Pages Posted: 13 Apr 2013

See all articles by Stuart Gabriel

Stuart Gabriel

University of California, Los Angeles (UCLA)

Matthew E. Kahn

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

Ryan Vaughn

University of California, Los Angeles (UCLA)

Date Written: April 2013

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.

Suggested Citation

Gabriel, Stuart and Kahn, Matthew E. and Vaughn, Ryan, Congressional Influence as a Determinant of Subprime Lending (April 2013). NBER Working Paper No. w18965. Available at SSRN: https://ssrn.com/abstract=2250274

Stuart Gabriel (Contact Author)

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

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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