Congressional Support for Subprime Lending

Pressure on the U.S. government to expand subprime credit came from both mortgage lenders and subprime borrowers.

At the peak of the recent housing boom, subprime mortgage companies were loaning $600 billion per year to homebuyers with poor credit histories. In The Political Economy of the Subprime Mortgage Credit Expansion (NBER Working Paper No.16107), co-authors Atif Mian, Amir Sufi, and Francesco Trebbi explore the links between the rapid growth of the subprime industry and Congressional politics and policy. Focusing on the period between 2002 and 2007, they document a sharp increase in campaign contributions and lobbying activity by the mortgage industry. Using data from the Center for Responsive Politics, the researchers find that the industry's campaign contributions increased somewhat between 1998 and 2002. But they began to accelerate rapidly in 2002, and rose by 80 percent between 2002 and 2006. Moreover, the study finds that these contributions were targeted to members of Congress whose districts included a large fraction of subprime borrowers.

The researchers study legislators' votes on more than 700 bills that related to housing -- specifically, bills tagged by the Congressional Research Service as related to "affordable housing," "home ownership," and "subprime." They find that over time, campaign contributions became a stronger predictor of representatives' voting. Similarly, the fraction of a legislator's district that consisted of subprime borrowers - as measured by consumer credit scores from Equifax - also became a more powerful explanation of voting patterns over time. The correlation between the concentration of subprime borrowers and voting patterns was greater in 2004, when subprime credit was beginning to flow, than in 1996, when subprime mortgages were still a small share of the overall mortgage market.

The authors conclude that "pressure on the U.S. government to expand subprime credit came from both mortgage lenders and subprime borrowers."

-- Kimberly Blanton

The Digest is not copyrighted and may be reproduced freely with appropriate attribution of source.
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us