The Political Economy of Mortgage Lending

53 Pages Posted: 28 Nov 2018 Last revised: 6 Jan 2021

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Tim Zhang

University of Wyoming, College of Business

Date Written: December 29, 2020

Abstract

We show that banks expand mortgage lending in the home states of Senate Banking Committee chairs, and the effect is more pronounced when the incumbent Senate Banking Committee chair is up for re-election. Consequently, these banks suffer worse mortgage asset quality in the following years, but their overall profitability increases after favoring the home states of the Banking Committee chairs. Our results are statistically and economically robust to a geographical regression discontinuity design that focuses on census tracts immediately adjacent to state borders, suggesting that the results are not driven by demand-side factors. We also find that banks strategically target politically active borrowers in the home states of Banking Committee chairs, and the effect is stronger when the bank is politically connected to the incumbent senator. Our findings suggest that political influences could distort private capital allocation beyond conventional political contribution channels.

Keywords: Political Influence, Mortgage Lending, HMDA, Senate Banking Committee

JEL Classification: D72, G21, G28

Suggested Citation

Chu, Yongqiang and Zhang, Tim, The Political Economy of Mortgage Lending (December 29, 2020). Available at SSRN: https://ssrn.com/abstract=3286398 or http://dx.doi.org/10.2139/ssrn.3286398

Yongqiang Chu (Contact Author)

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Tim Zhang

University of Wyoming, College of Business

1000 E. University Avenue
Department 3275
Laramie, WY 82071
United States

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