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Neighborhood patterns of subprime lending: Evidence from disparate cities

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  • Paul Calem
  • Jonathan Hershaff
  • Susan Wachter

Abstract

This article estimates a model of prime versus subprime allocation of loans for seven cities in 1997 and 2002; the model is based on both individual loan and neighborhood attributes. Of immediate interest is the effect of neighborhood racial and ethnic composition on the likelihood of receiving a subprime loan. We also allow for the interaction of borrower race and ethnicity with neighborhood attributes. A unique feature of our study is that it provides additional neighborhood controls for the aggregate level of credit risk and the neighborhood level of equity risk. We find some evidence of tightening loan standards in the subprime market over this five‐year period. Even with risk controls, the neighborhood minority share is consistently significant and positively related to subprime share in both years. Furthermore, the neighborhood educational level is consistently significant and negatively related to subprime lending.

Suggested Citation

  • Paul Calem & Jonathan Hershaff & Susan Wachter, 2004. "Neighborhood patterns of subprime lending: Evidence from disparate cities," Housing Policy Debate, Taylor & Francis Journals, vol. 15(3), pages 603-622.
    • Handle: RePEc:taf:houspd:v:15:y:2004:i:3:p:603-622
    DOI: 10.1080/10511482.2004.9521515
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    Citations

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    Cited by:

    1. Philip Bond & David K. Musto & Bilge Yilmaz, 2006. "Predatory lending in rational world," Working Papers 06-2, Federal Reserve Bank of Philadelphia.
    2. David Nickerson, 2016. "Asset Price Volatility, Credit Rationing and Rational Lending Discrimination," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(10), pages 140-158, October.
    3. Courchane, Marsha & Darolia, Rajeev & Gailey, Adam, 2015. "Borrowers from a different shore: Asian outcomes in the U.S. mortgage market," Journal of Housing Economics, Elsevier, vol. 28(C), pages 76-90.
    4. Xudong An & Raphael W. Bostic, 2006. "Have the Affordable Housing Goals been a Shield against Subprime? Regulatory Incentives and the Extension of Mortgage Credit," Working Paper 8572, USC Lusk Center for Real Estate.
    5. Stephen L. Ross & Yuan Wang, 2022. "Mortgage Lenders and the Geographic Concentration of Foreclosures," Working Papers 2022-001, Human Capital and Economic Opportunity Working Group.
    6. Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2014. "Race, Ethnicity and High-Cost Mortgage Lending," NBER Working Papers 20762, National Bureau of Economic Research, Inc.
    7. Samantha Friedman & Hui-shien Tsao & Cheng Chen, 2013. "Housing Tenure and Residential Segregation in Metropolitan America," Demography, Springer;Population Association of America (PAA), vol. 50(4), pages 1477-1498, August.
    8. Raphael W. Bostic & Brian J. Surette, 2004. "Market Forces or CRA-induced Externalities: What Accounts for the Increase in Mortgage Lending to Lower-Income Communities?," Working Paper 8592, USC Lusk Center for Real Estate.
    9. Elizabeth Laderman & Carolina Reid, 2008. "Lending in low- and moderate-income neighborhoods in California: the performance of CRA lending during the subprime meltdown," Community Development Working Paper 2008-05, Federal Reserve Bank of San Francisco.
    10. Richter, Francisca G.-C. & Craig, Ben R., 2013. "Lending patterns in poor neighborhoods," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 197-206.
    11. Sara DeLoughy, 2012. "Risk versus Demographics in Subprime Mortgage Lending: Evidence from Three Connecticut Cities," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 569-587, October.
    12. Anne B. Shlay, 2006. "Low-income Homeownership: American Dream or Delusion?," Urban Studies, Urban Studies Journal Limited, vol. 43(3), pages 511-531, March.
    13. Stephen L. Ross, 2005. "The Continuing Practice and Impact of Discrimination," Working papers 2005-19, University of Connecticut, Department of Economics, revised Jul 2006.
    14. Bocian, Debbie Gruenstein & Ernst, Keith S. & Li, Wei, 2008. "Race, ethnicity and subprime home loan pricing," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 110-124.
    15. Yonghua Zou, 2015. "Re-examining the Neighborhood Distribution of Higher Priced Mortgage Lending: Global versus Local Methods," Growth and Change, Wiley Blackwell, vol. 46(4), pages 654-674, December.
    16. John Gilderbloom & Katrina Anaker & Gregory Squires & Matt Hanka & Joshua Ambrosius, 2011. "Why Foreclosure Rates in African American Neighborhoods are so High: Looking at the Real Reaonss," ERSA conference papers ersa11p1597, European Regional Science Association.

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