GSE Activity and Mortgage Supply in Lower-Income and Minority Neighborhoods: The Effect of the Affordable Housing Goals

Abstract

I estimate the credit supply effect of the Underserved Areas Goal (UAG), which establishes GSE purchase goals for mortgages to lower-income and minority neighborhoods. Taking advantage of discontinuous census tract eligibility rules and abrupt changes in tract eligibility, I find some evidence of a small UAG effect on GSE purchases and mortgage originations, without crowding-out of FHA and subprime lending. The results also suggest that the GSEs exploit the law's lack of precision-targeting, yielding effects that might diverge from the law's intent.

Keywords: GSE, regression discontinuity, FHA, affordable housing goals, homeownership, subprime mortgage, underserved areas