State Politics and Mortgage Markets

This article examines whether elections for state offices that regulate mortgage lenders affect mortgage markets. Some scholars assert that election-related political uncertainty depresses economic activity; others contend that incumbents pursue policies to boost short-term growth prior to elections; and a third group claims that market activity fluctuates around partisan transitions. We test these theories using national data on mortgage characteristics and election data for two important state regulators. We first conduct event studies comparing mortgage market outcomes before and after elections. We then utilize difference-in-difference models to compare states in which partisan control of key offices switched following an election. Our results do not show consistent support for any of these theories. We find that elections have few significant effects on mortgage markets, suggesting that delegating regulatory power to elected state officials may be efficient.