Affordable Housing as Source of Bubble

...policies to push home ownership weren't responsible...

Working papers are the place to go for recent research; journals are passe, too far behind the times to be my first resort.

A recent paper by Rubén Hernández-Murillo, Andra C. Ghent and Michael T. Owyang is a good example. Furthermore, as with most working papers, it's freely downloadable, though you'll need to have a subscription when it comes out as a standard journal article some years hence. Here I provide the title, abstract and a link. Of course (well, not all papers are that way) it's written with economists in mind and so even the abstract is heavy on jargon -- though their one-word summary is clear and says it all. Anyway, I'll translate...

Title:

Did affordable housing legislation contribute to the subprime securities boom?

Abstract:

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.

Translation:

Let's crunch the data before and after policy changes to see whether the number of sub-prime mortgages changes, or the terms and conditions changed. We put in variables known to affect the mortgage market, which otherwise might obscure (or exaggerate) the effects of policy. Furthermore, we'll use really detailed local data to make sure we're comparing apples to apples, and don't by accident compare a region with lots of subprime mortgages to one with few. Finally, looking at those who all along would have qualified for subprime mortgages doesn't tell us much, or rather may obscure what is going on. For example, the number of such people may have increased reflecting changes in demographics and job markets. So we'll look at people around the margin, and not in the middle. The result: before and after are the same. Policy didn't do it.

Now that's what those who have "eyeballed" the data have long maintained. But we worked really hard to see if any of the reasons given that "eyeballing" was wrong held water. They didn't. No smoking gun. No evidence, period.

OK, maybe the authors wouldn't go quite so far ... but that's how I as an economist read the subtext of the abstract.

...Mike Smitka...

Link to pdf: (don't click if you don't want the actual paper!)
http://d.repec.org/n?u=RePEc:fip:fedlwp:2012-005&r=ure