Via Marginal Revolution, a study on New Century Financial Corporation, an Orange County subprime lender, whose collapse in early 2007 was the the first crack in the dam.
Congressional Influence as a Determinant of Subprime Lending
Stuart A. Gabriel, Matthew E. Kahn, Ryan K. Vaughn
NBER Working Paper No. 18965
Issued in April 2013
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.
The data keep piling up for a theory Steve had in 2008.
ReplyDeleteMaybe you want to listen to Steve.
Since all of this paper except the abstract is behind a paywall, I thought I'd try to translate the abstract. Your mileage may differ. My attempt:
ReplyDeleteAbstract:
"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."
My guess as to how this translates into good ol' murcan:
"We got data no one else had from New Century Financial Corporation (NCFC). NCFC was one of those companies involved in making real-estate loans to poor people who couldn't pay them off.
We found that poor folks in congressional districts that belonged to congressmen who were in positions of power in Congress got more money and superficially better deals. Especially Blacks.
This relates to why lending problems happened in different places(*). It also suggest NCFC and congress critters were swapping favours regarding the real-estate lending biz that were beneficial to both."
(*) No mention of the I-word, at least on the abstract.