By Alan White
The new paper by Todd Zywicki and Joseph Adamson reasserts the received wisdom that subprime mortgage lending had significant consumer welfare benefits, specifically that it increased homeownership and provided access to credit to previously excluded groups. I was disappointed to find that the sources cited do not provide any more empirical support for this folk wisdom than has been previously offered elsewhere. I have argued that subprime mortgage lending did no such thing, i.e. was in no way responsible for the slight increase in homeownership in the 1995 to 2005 period (homeownership is now going down, thanks to subprime foreclosures), in a paper I posted a while back. In my view, subprime mortgage lending had the net impact of reducing homeownership, and displacing cheaper and better home financing, especially for low-income and minority groups. I tried to survey the available research and empirical data and to look at other variables that have affected homeownership and the volume of consumer credit in the relevant period, including data from the Survey of Consumer Finances, the Census Housing Survey and other available sources. If it were true that subprime mortgages had produced significant welfare benefits, then I would agree with the conclusion that regulation needs to proceed carefully. I don't believe the evidence is there, if the question is examined carefully, although I am very interested in seeing empirical evidence to support the hypothesis that subprime mortgages improved aggregate welfare. A note on the specific sources in the continuation.







