Chan, Sewin and Gedal, Michael and Been, Vicki and Haughwout, Andrew (2011): The role of neighborhood characteristics in mortgage default risk: evidence from New York City.
Download (531kB) | Preview
Using a rich database of non-prime mortgages from New York City, we find that census tract level neighborhood characteristics are important predictors of default behavior, even after controlling for an extensive set of controls for loan and borrower characteristics. First, default rates increase with the rate of foreclosure notices and the number of lender-owned properties (REOs) in the tract. Second, default rates on home purchase mortgages are higher in census tracts with larger shares of black residents, regardless of the borrower’s own race. We explore possible explanations for this second finding and conclude that it likely reflects differential treatment of black neighborhoods by the mortgage industry in ways that are unobserved in our data.
|Item Type:||MPRA Paper|
|Original Title:||The role of neighborhood characteristics in mortgage default risk: evidence from New York City|
|Keywords:||mortgage, default, neighborhoods, race|
|Subjects:||G - Financial Economics > G2 - Financial Institutions and Services
R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics
|Depositing User:||Unnamed user with email email@example.com|
|Date Deposited:||07. Oct 2011 16:57|
|Last Modified:||16. Feb 2013 03:46|
Agarwal, Sumit, Brent W. Ambrose, Souphala Chomsisengphet and Anthony B. Sanders. 2011. “Thy Neighbor’s Mortgage: Does Living in a Subprime Neighborhood Affect One’s Probability of Default?” Real Estate Economics, forthcoming.
Amronim, Gene, and Anna L. Paulson. 2010. “Default Rates on Prime and Subprime Mortgages: Differences and Similarities.” Profitwise News and Views, September.
Aragon, Diego, Andrew Caplin, Sumit Chopra, John V. Leahy, Yann LeCun, Marco Scoffier, and Joseph Tracy. 2010. “Reassessing FHA Risk.” NBER Working Paper 15802.
Berkovec, James A., Glenn B. Canner, Stuart A. Gabriel, and Timothy H. Hannan. 1994. “Race, Redlining, and Residential Mortgage Loan Performance.” Journal of Real Estate Finance and Economics, 9(3): 263-94.
Campbell, John Y., Stefano Giglio and Parag Pathak. 2009. “Forced Sales and House Prices.” NBER Working Paper 14866.
Coulton, Claudia, Tsui Chan, Michael Schramm, and Kristen Mikelbank. 2008. “Pathways to Foreclosure: A Longitudinal Study of Mortgage Loans, Cleveland and Cuyahoga County, 2005-2008.” Center on Urban Poverty and Community Development, Case Western Reserve University.
Courchane, Marsha J., Brian J. Surette, and Peter M. Zorn. 2004. “Subprime Borrowers: Mortgage Transitions and Outcomes.” Journal of Real Estate Finance and Economics, 29(4): 365-92.
Danis, Michelle A., and Anthony N. Pennington-Cross. 2005. “The Delinquency of Subprime Mortgages.” Federal Reserve Bank of St. Louis Working Paper 2005-022A. 31
Demyanyk, Yuliya. 2009. “Quick Exits of Subprime Mortgages.” Federal Reserve Bank of St. Louis Review, 2: 79-93.
Ding, Lei, Roberto G. Quercia, Janneke Ratcliffe, and Wei Lei. 2008. “Risky Borrowers or Risky Mortgages: Disaggregating Effects Using Propensity Score Models.” Center for Community Capital University of North Carolina Working Paper.
Firestone, Simon, Robert Van Order, and Peter M. Zorn. 2007. “The Performance of Low-Income and Minority Mortgages.” Real Estate Economics, 35(4): 479-504.
Foote, Christopher L., Kristopher S. Gerardi, Lorenz F. Goette, and Paul Willen. 2009. “Reducing Foreclosures.” Federal Reserve Bank of Boston Public Policy Discussion Paper 2009-02.
Furman Center for Real Estate and Urban Policy. 2009. “State of the City’s Housing & Neighborhoods 2009.” http://furmancenter.org/research/sonychan/2009-report
Furman Center for Real Estate and Urban Policy. 2010. “Foreclosed Properties in NYC: A Look at the Last 15 Years.” http://furmancenter.org/files/publications/Furman_Center_Fact_Sheet_on_REO_Properties.pdf.
Gerardi, Kristopher S., Adam H. Shapiro, and Paul Willen. 2007. “Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures.” Federal Reserve Bank of Boston Working Paper 2007-15.
Guiso, Luigi, Paola Sapienza, and Luigi Zingales. 2009. “Moral and Social Constraints to Strategic Default on Mortgages.” NBER Working Paper 15145.
Harding, John, Eric Rosenblatt, and Vincent Yao. 2009. “The Contagion Effect of Foreclosed Properties.” Journal of Urban Economics, 66(3): 164-78.
Hartley, Daniel A. 2010. “The Effect of Foreclosures on Owner-Occupied Housing Prices: Supply or Dis-Amenity?” Paper presented at the Federal Reserve Bank of Cleveland Policy Summit, Cleveland, OH.
Haughwout, Andrew, Christopher Mayer, and Joseph Tracy. 2009. “Subprime Mortgage Pricing: The Impact of Race, Ethnicity and Gender on the Cost of Borrowing.” Brookings-Wharton Papers on Urban Affairs: 33-63.
Haughwout, Andrew, Richard Peach, and Joseph Tracy. 2008. “Juvenile Delinquent Mortgages: Bad Credit or Bad Economy?” Journal of Urban Economics, 64(2): 246-57.
Immergluck, Dan, and Geoff Smith. 2006. “The External Costs of Foreclosure: The Impact of Single-Family Mortgage Foreclosures on Property Values.” Housing Policy Debate, 17(1): 57-79. 32
Ioannides, Yannis M. 2003. “Interactive Property Valuations.” Journal of Urban Economics, 53(1): 145- 70.
Jiang, Wei, Ashlyn Aiko Nelson, and Edward Vytlacil. 2009. “Liar’s Loan? Effects of Origination Channel and Information Falsification on Mortgage Delinquency.” Columbia University Business School Working Paper.
Laderman, Elizabeth, and Carolina Reid. 2008. “Lending in Low- and Moderate-Income Neighborhoods in California: The Performance of CRA Lending During the Subprime Meltdown.” Federal Reserve Bank of San Francisco Working Paper 2008-05.
Lee, Kai-Yan. 2008. “Foreclosure's Price-Depressing Spillover Effects on Local Properties: A Literature Review.” Federal Reserve Bank of Boston Community Affairs Discussion Paper 2008-01.
Leonard, Tammy, and James Murdoch. 2009. “The Neighborhood Effects of Foreclosure.” Journal of Geographical Systems, 11(4): 317-32.
Lin, Zhenguo, Eric Rosenblatt, and Vincent W. Yao. 2009. “Spillover Effects of Foreclosures on Neighborhood Property Values.” Journal of Real Estate Finance and Economics, 38(4): 387-407.
Mayer, Christopher, Karen Pence, and Shane M. Sherlund. 2009. “The Rise in Mortgage Defaults.” Journal of Economic Perspectives, 23(1): 27-50.
Mian, Atif R. and Amir Sufi. 2009. “The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis.” Quarterly Journal of Economics, 124(4): 1449-1496.
Morin, Rich. 2010. “Walking Away. A Third of the Public Says It’s Sometimes OK to Stop Paying a Mortgage.” Pew Research Center Social and Demographic Trends Report, September 2010.
Okah, Ebiere, and James Orr. 2010. “Subprime Mortgage Lending in New York City: Prevalence and Performance.” Federal Reserve Bank of New York Staff Report 432.
Rogers, William, and William Winter. 2009. “The Impact of Foreclosures on Neighboring Housing Sales.” Journal of Real Estate Research, 31(4): 455-479.
Schloemer, Ellen, Wei Li, Keith Ernst, and Kathleen Keest. 2006. “Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners.” Center for Responsible Lending.
Schuetz, Jenny, Vicki Been, and Ingrid Gould Ellen. 2008. “Neighborhood Effects of Concentrated Mortgage Foreclosures.” Journal of Housing Economics, 17(4): 306-319.
Van Order, Robert, and Peter Zorn. 2000. “Income, Location and Default: Some Implications for Community Lending.” Real Estate Economics, 28(3): 385-404.