Poster Paper: Did Affordable Housing Mandates Cause the Subprime Mortgage Crisis?

Friday, November 9, 2012
Liberty A & B (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Shawn R Moulton, Abt Associates, Inc.

The 1992 Federal Housing Enterprises Financial Safety and Soundness Act (GSE Act) mandated that a specified percentage of Fannie Mae and Freddie Mac purchases come from underserved populations.  A number of prominent observers have pointed to the GSE Act as a root cause of the recent housing crisis.  This paper evaluates the link between the GSE Act and relaxed mortgage market standards.  Using loan application-level data from the Home Mortgage Disclosure Act, I analyze whether the GSE Act’s affordable housing goals altered mortgage lending or purchasing decisions.  To identify this effect, I use a regression discontinuity design that exploits arbitrary cutoffs used to determine whether a loan satisfies the GSE Act goals.  I find that the GSE Act’s affordable housing goals had little to no effect on mortgage lending or purchasing.  These results suggest that the 1992 GSE Act had a negligible effect on the recent mortgage market crisis.