Few American homeowners — or wannabe homeowners — think about the ease of the financial mechanism that delivers their white picket fence or windowed high-rise with a city view. That is, until it’s taken away.
When mortgages are messed with, Americans vote in protest, according to a new academic paper.
In “Mortgage Market Credit Conditions and U.S. Presidential Elections,” Alexis Antoniades of Georgetown University and Charles W. Calomiris of Columbia University show that changes in the availability of mortgage credit affect voting patterns in presidential elections. In turn, that influences politicians’ behavior.
Put another way, when politicians are delivering cheap mortgage credit to constituents, voters might not notice. But when access to that credit is tightened, voters punish incumbents.
The most obvious example is still fresh in many Americans’ memory.
“If the supply of mortgage credit had not contracted from 2004 to 2008,” the researchers write, “[Republican presidential candidate John] McCain would have received half the votes needed in nine crucial swing states to reverse the outcome of the election [that instead went to Barack Obama]. The effect on voting in these swing states from local contractions in mortgage credit supply was five times as important as the increase in the unemployment rate.”
A similar dynamic — the contraction of easy credit in Obama’s first term as the housing crisis came to a head— meant that the Democratic Party suffered in congressional seats, and Mitt Romney’s candidacy benefitted, although he eventually lost to Obama.
The researchers also analyzed presidential elections that took place before the credit swing in the wake of the housing bust. When credit was booming, it didn’t seem to help the incumbent Democratic Party in 2000 or Republican Party in 2004, they found.
“Asymmetries in voting response may reflect attribution bias,” they wrote. “When a voter gets a job or secures a mortgage, he or she may conclude that this is a consequence of his or her achievements; when a voter loses a job or is rejected for a mortgage, he or she may find it easier (in the sense of avoiding cognitive dissonance) to blame others.”
Those findings may seem intuitive, and Calomiris and Antoniades build on past research demonstrating similar ideas, including a paper dating back to 1975 that shows the “asymmetries” noted above about voters’ responses to economic conditions.
What may be more surprising is the way politicians behave. “There is plenty of evidence that politicians in the United States and other democracies behave as if they believe that voters will reward them for delivering cheap credit,” they write.
But proactive steps to expand credit are unusual in that they can be bipartisan. While Republicans are often seen as skeptical of government intervention in financial markets, in the case of enabling homeownership, “Presidents George H.W. Bush, Bill Clinton and George W. Bush all were vocal and active supporters of expanding mortgage credit subsidies,” the researchers note.
George H.W. Bush established mortgage purchase mandates for low-income and urban housing for Fannie Mae and Freddie Mac. Bill Clinton substantially expanded those mandates and weakened FHA lending standards. And George W. Bush further expanded the Fannie and Freddie mandates as part of his “blueprint for the American dream.”’
Politicians may be aware that voters likely won’t reward them for actions that expand credit, but take steps to keep it flowing nonetheless. That’s because they may expect explicit rewards like contributions and endorsements from what Calomiris and Antoniades call “the smoke-filled room channel.” That includes interest groups like lenders, the government-sponsored enterprises like Fannie Mae and Freddie Mac and consumer advocacy groups.
For that reason, any mortgage-process reforms enacted by politicians that would crack down on credit availability should be advanced during expansion of the credit cycle to avoid electoral consequences.
And, say the researchers, inviting some controversy, the bigger political payout would actually come from “…placating special interests rather than voters, given the likely importance of the smoke-filled-room channel during expansion phases of the mortgage credit cycle.”