WSB Research: Now You Know

Did affordable housing policies cause the financial crisis?

Q: Did affordable housing policies cause the financial crisis?

Opinions vary about what caused the 2008 financial crisis, but one would-be culprit has proved to be false: federal affordable housing mandates.

Andra Ghent, Lorin and Marjorie Tiefenthaler Professor in Real Estate at the Wisconsin School of Business, and two co-authors were able to debunk the theory that the crisis was caused by federal policies that encouraged lower-income people to take out a mortgage. They reviewed data from 722,157 subprime mortgages in California and Florida at the height of the subprime lending boom that led to the financial crisis.

Their study showed the typical subprime borrower had income over $100,000 and lived in a low-income neighborhood, which suggests borrowers or loan originators overstated income to get the loans. If meeting affordable housing mandates was a goal, borrowers or originators would have understated income, not overstated, to satisfy those goals.

In addition, the data showed non-depository institutions originated the majority of the subprime loans. However, one of the two main affordable housing programs, the Community Reinvestment Act, only applies to depository institutions such as a bank or credit union.

Data also showed that additional loans were not made under the income threshold for the various affordable housing programs, indicating that threshold was not a target. That similar quantities of loans were made above and below the low-income threshold indicated that affordable housing mandates were not a factor in originating them.

Can hospitals benefit from focused factory thinking?

Q: Can hospitals benefit from focused factory thinking?

The concept of “focus”—specializing in a limited number of tasks in order to develop efficiency and effectiveness—has been a mainstay in operations strategy for decades. Putting that strategy in place in hospitals and not just in factories has also proved to be effective.

Urban Wemmerlöv, Charles and Laura Albright Professor in Business and Finance, and Kress Family Professor in Productivity and Quality at the Wisconsin School of Business, and two co-authors studied the concept at work at a major hospital where a dedicated trauma unit with specialized trauma staff cared for patients in one location throughout their stay (with the exception of major surgeries). Previously, trauma care at this hospital had consisted of emergency room arrival and subsequent transfers within the main hospital.

Wemmerlöv and his co-authors found moving from the traditional way of caring for trauma patients to a specialized manufacturing-inspired model had positive financial, operational, and work culture outcomes. In addition, a dedicated group of trauma physicians and trauma nurses created a collaborative team that worked together in a way the hospital’s director of trauma described as “a well-oiled machine.”

The concept of focus in healthcare—in the form of specialty hospitals and ambulatory surgery centers—is not new, but Wemmerlöv’s research provides an in-depth case study on its potential effectiveness and impact in a previously unstudied area.

Can online research influence in-person purchases?

Q: Can online research influence in-person purchases?

Shoppers can use an internet search to get more than an array of merchants and prices online: It can help them deduce what they think is a fair price in a brick-and-mortar store.

Neeraj Arora, professor of marketing and the Arthur C. Nielsen Jr. Chair in Marketing Research and Education, has examined the impact of price comparison websites on offline price evaluations by shoppers and what retailers can learn from it.

Consumers rely on price comparison sites to not only look for the best price, but also for a reputable seller. And, they’re looking for what Arora and his co-authors call “price validity”—a price perceived to be trustworthy.

A price comparison site such as PriceGrabber.com might show the lowest price, but can that price be trusted? If the lowest price comes from a low-rated seller, consumers might not have confidence in buying the product despite the possible deal.

Brick-and-mortar retailers can learn from this. They shouldn’t automatically try to match the lowest price but instead focus on the most frequently offered price by reputable online merchants.

Arora’s research shows that while consumers have benefited from the wealth of information online for quite some time, retailers can use that same information to remain competitive in the market.

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Frank McGehee (MBA ’99) and Marie McGehee (MBA ’99)

work in the NYC area. Frank is the head of Global CRM for the music streaming company TIDAL and Marie is director of corporate communications for Verizon. In November Frank was elected to a three-year term on the five-person Maplewood, New Jersey Township Committee. Their daughter, Madison, is an aspiring actress performing in several off-Broadway shows and showcases. More Class Notes »

Jonathan Horne<br>(MBA/JD ’13)

launched a new venture capital fund, The Idea Fund of La Crosse, in February. The fund is actively seeking pre-revenue companies in Wisconsin for investment. Prior to the Idea Fund, he worked in the investment banking division of JP Morgan in New York. More Class Notes »

Cara Lombardo<br />(BBA ’10, MAcc ’11)

left her job as an auditor at PwC to become a journalist. Her accounting training has proved useful in her reporting. She and accounting classmate Matthew Brody (MAcc ’11) are planning a 2018 wedding in Madison. More Class Notes »