Who Benefited from the Mortgage Lending Boom Leading to the Housing Crisis

The late 1990s through the mid-2000s was a period of historic growth in mortgage lending and house prices and there is intense debate over whether lending growth was a cause or consequence of house price growth. I show that lending growth was strongest for lower-income and minority borrowers. However, I also show that there was pronounced lending growth for all borrowers, regardless of income or race, in lower-income and higher-minority neighborhoods. Importantly, each of these results hold after I control for the effects of growth, or expectations of growth, in house prices. This evidence is consistent with the view that the house price boom was caused by an expansion in the supply of mortgage credit, primarily benefiting borrowers and neighborhoods which previously had the most limited access to mortgage credit. In particular, the evidence can be explained by government housing policies which mandated increased lending to lower-income borrowers as well as borrowers in lower-income and higher-minority neighborhoods.