Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)

Legacy Department


Committee Chair/Advisor

Gordon, David B

Committee Member

Dougan , William R

Committee Member

Tollison , Robert D

Committee Member

Warner , John T


The rate of home ownership in the US had remained around 65% since the end of the Second World War. Between 1994 and 2006 the rate of home ownership climbed to 69%. In 2006, the combined assets of the top 5 bank holding companies were $6 trillion. Between 2007 and 2009 almost $2 trillion of bank assets evaporated as widespread mortgage defaults triggered a crisis. The pressing question is why were so many bad loans originated in the first place and what induced firms and investors to hold them? The primary mortgage market is intensely regulated and the secondary market is dominated by the government-sponsored enterprises (GSEs). Therefore it is important to examine the regulatory incentives to originate risky mortgages.
This dissertation looks at influence of the Community Reinvestment Act (CRA, 1977) and the GSEs to originate and hold different kinds of mortgages. Chapter One looks at the how the patterns of origination change for institutions subject to the CRA at the time of a merger. Chapter Three estimates the propensity of lenders to retain or sell their mortgages to GSEs and private institutions. Chapter Two links Chapters One and Three by examining the effect of the CRA on securitization. The research shows that institutions subject to the CRA lower their rates of denial and securitize more assets when they plan to merge and are under community group pressure. The research also reveals that the GSEs faced more competition after 2003 and as a result may have lowered their lending standards by accepting loans with higher ratios of loan amount to annual income.
Chapter Two shows that investors accepted loans originated in response to CRA pressure without requiring a higher proportion of credit guarantees. This means that market participants may not have been fully cognizant of how the riskiness of mortgages changed in response to CRA pressure.
While many questions about the roots of the financial crisis are still to be answered, the results presented in this paper indicate that regulation played a significant role in altering the patterns and extent of origination.

Included in

Economics Commons



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