Did Affordable Housing Legislation Contribute to the Subprime Securities Boom?

March 26, 2012 2:30pm by Barry Ritholtz

Working Paper 2012-005A by Andra C. Ghent, Rubén Hernández-Murillo, and Michael T. Owyang

No. In this paper we use a regression discontinuity approach to investigate whether affordable housing policies influenced origination or affected prices of subprime mortgages. We use merged loan-level data on non-prime securitized mortgages with individual- and neighborhood-level data for California and Florida. We find no evidence that lenders increased subprime originations or altered pricing around the discrete eligibility cutoffs for the Government Sponsored Enterprises (GSEs) affordable housing goals or the Community Reinvestment Act. Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by the GSEs were not due to affordable housing mandates.

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