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Metropolitan Segregation and the Subprime Lending Crisis

Author

Listed:
  • Derek S. Hyra
  • Gregory D. Squires
  • Robert N. Renner
  • David S. Kirk

Abstract

Unsustainable high-cost lending was a major contributor to one of the worst financial crises in U.S. history. While several studies examine individual- and community-level predictors of high-cost lending, little research has tested for the possible causal effect of racial segregation. Using two-stage least squares statistical models, we find evidence that even after controlling for percentage minority, poverty, unemployment, low credit scores, home value escalation, and bank branch accessibility, black/white segregation is a significant predictor of the proportion of subprime loans originated in the largest 200 U.S. metropolitan areas. We also find that increased black education levels are important protective factors, while greater shares of mortgages originated by independent mortgage companies increase the risk for subprime lending. We find no evidence for an effect of Hispanic/white segregation on subprime lending. This research suggests that policy initiatives aimed at limiting high-cost lending should address the context of black/white segregation, education, and financial reform.

Suggested Citation

  • Derek S. Hyra & Gregory D. Squires & Robert N. Renner & David S. Kirk, 2013. "Metropolitan Segregation and the Subprime Lending Crisis," Housing Policy Debate, Taylor & Francis Journals, vol. 23(1), pages 177-198, January.
    • Handle: RePEc:taf:houspd:v:23:y:2013:i:1:p:177-198
    DOI: 10.1080/10511482.2012.697912
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    References listed on IDEAS

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    1. Engel, Kathleen C. & McCoy, Patricia A., 2011. "The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps," OUP Catalogue, Oxford University Press, number 9780195388824.
    2. Ozgur Emre Ergungor, 2010. "Bank Branch Presence and Access to Credit in Low- to Moderate-Income Neighborhoods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1321-1349, October.
    3. John C. Weicher, 2007. "The Long and Short of Housing: The Home Ownership Boom and the Subprime Foreclosure Bust," NFI Policy Briefs 2007-PB-09, Indiana State University, Scott College of Business, Networks Financial Institute.
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    2. Scott N. Markley & Taylor J. Hafley & Coleman A. Allums & Steven R. Holloway & Hee Cheol Chung, 2020. "The Limits of Homeownership: Racial Capitalism, Black Wealth, and the Appreciation Gap in Atlanta," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 44(2), pages 310-328, March.
    3. Emily S. Taylor Poppe, 2016. "Homeowner Representation in the Foreclosure Crisis," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 13(4), pages 809-836, December.
    4. Theordoros Panagiotakopoulos & George-Rafael Domenikos & Alexander V. Mantzaris, 2022. "Exploring Simulated Residential Spending Dynamics in Relation to Income Equality with the Entropy Trace of the Schelling Model," Mathematics, MDPI, vol. 10(18), pages 1-13, September.
    5. Rafael Eduardo Saavedra Leyva & Gilberto Martínez Sidón & Germán Osorio Novela, 2022. "Resiliencia del emprendimiento en México. Los casos de las crisis económicas del COVID-19 y subprime," Estudios Gerenciales, Universidad Icesi, vol. 38(165), pages 507-518, November.
    6. Jacob Faber, 2021. "Contemporary echoes of segregationist policy: Spatial marking and the persistence of inequality," Urban Studies, Urban Studies Journal Limited, vol. 58(5), pages 1067-1086, April.
    7. Matthew Hall & Kyle Crowder & Amy Spring, 2015. "Variations in Housing Foreclosures by Race and Place, 2005–2012," The ANNALS of the American Academy of Political and Social Science, , vol. 660(1), pages 217-237, July.

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