Individual Mortgage Lending, Public Corruption, Race, and Gender: Evidence from Local Corruption Crackdowns

Abstract

We examine whether public corruption affects the U.S. mortgage market, as prior research documents that corruption is particularly costly in situations, like homebuying, where government interaction is frequent and necessary. In line with this reasoning, we find that mortgage approvals increase and rates decrease after local anti-corruption laws are enacted. We establish identification via loans originating from the same bank-office for properties in different (treated vs. untreated) jurisdictions. Our results are strongest for minority borrowers. This is consistent with prior research suggesting that minority groups face higher corruption-related costs, as in-group favoritism limits corrupt officials’ extractions from majority group members.

Keywords: Political corruption, public corruption, mortgage lending, bank financing

JEL Classification: D73, G5, G21