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Abstract:
Subprime mortgage lending has grown rapidly in recent years and with it, so have concerns about predatory lending. In response to evidence of predatory lending, most states have enacted new laws or expanded existing laws to address abuses in the subprime home loan market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context. Our results are consistent with the view that anti-predatory lending laws influence subprime lending markets and that disaggregating the details of the overall legal framework into its component parts is essential for understanding subprime market dynamics. The restrictions, coverage, and enforcement components all have significant relationships with subprime market outcomes, with the coverage relationship found to be broadly consistent with the reverse lemons hypothesis put forward by Ho and Pennington-Cross (2007). The results also suggest that the newer mini-HOEPA laws have had an impact on the subprime market above and beyond the older preexisting laws, particularly for subprime originations. Broader coverage through these new laws is associated with higher origination likelihoods, while increased restrictions through the mini-HOEPA laws are associated with lower origination propensities.

Subprime lending, enforcement mechanisms, predatory lending, anti-predatory lending laws, mortgage lending, homeownership

Abstract:
This paper sheds some light on the empirical importance of supplier relationships, including ethnic ties, for the use of trade credit by minority-owned small businesses. Results based on the 1993 National Survey of Small Business Finance (NSSBF) indicate that ethnic differences in the use of trade credit are present after conditioning on an extensive list of control variables. This holds especially for Black-owned businesses, and we find that they use less trade credit, are less likely to take advantage of discounts for early payment, and are more likely to have payments past due.

We use neighborhood survey data to explore the importance of supplier relationships for the use of trade credit by Black- and Hispanic-owned businesses. Although Black and Hispanic owners are equally likely to be offered trade credit, the relationship effects vary by ethnicity. Closer relationships with suppliers, as measured by ethnic ties and geographical proximity, are associated with more trade credit for Hispanic-owned businesses. In contrast, this result does not hold for Black-owned firms.

The neighborhood survey results suggest the idea of looking for ethnic differences in the effects of relationships at the national level as well. Although good supplier-level measures of relationships are not available in the NSSBF, we use census data to construct MSA-level measures of the prevalence of minority-owned businesses. We then explore how location in an MSA with a higher proportion of businesses of the same ethnicity is associated with the use of trade credit by minority owners relative to White-owned firms. We find that a higher MSA share for Hispanic-owned businesses is generally associated with a reduction in differences in the use of trade credit by Hispanic owners relative to White owners. No clear association is apparent between the MSA share for Black-owned businesses and their use of trade credit.

Thus, the ethnic differences in the effects of relationships evident in the neighborhood surveys seem to be consistent with the results from the national survey.

Abstract:
Bank regulators are required to consider a bank's record of providing credit to low- and moderate-income neighborhoods and individuals in approving bank applications for mergers and acquisitions. We test the hypothesis that banks strategically prepare for the regulatory and public scrutiny associated with a merger or acquisition by increasing their lending to low- and moderate-income individuals in anticipation of acquiring another institution. We find evidence in favor of this hypothesis. In particular, we show that the higher the percentage of the institution's mortgage originations in a given year that are directed to low- and moderate-income individuals or neighborhoods, the greater the probability that the institution will acquire another bank in the following year. Further investigation bolsters the view that this correlation is due to banks' anticipation of the public and regulatory scrutiny during the merger review process. The effect cannot be explained by other bank characteristics. The relationship is observed for acquiring banks, which are the focus of public and regulatory scrutiny, but not for the banks that are being acquired. In addition, the positive effect of lending to low- and moderate-income individuals and neighborhoods on the likelihood that a bank will acquire another bank increases over the 1991 - 1995 time frame, a period when public and regulatory scrutiny of an institution's community lending record increased. The effect of lending to low- and moderate-income individuals and neighborhoods is also largest for big banks, who face particularly intense public and regulatory scrutiny.

Abstract:
Homeownership among U.S. families increased notably in recent years, from 63.9% in 1989 to 66.2% in 1998. This paper examines this trend and the factors contributing to it. We find that (1) homeownership has risen for all racial, ethnic, and income groups, (2) the differences in homeownership between minority and non-minority families and between middle-income and lower-income families declined significantly, and (3) changes in family-related characteristics explain homeownership trends among only the top two income quintiles. Among the lower two income quintiles, family-related characteristics explain almost none of the increase in homeownership. This pattern of results suggests that changes in mortgage and housing markets and changes in the regulations that govern those markets, such as CRA and HMDA, account for the increase in homeownership among lower-income families.

Homeownership, community reinvestment, CRA, home mortgage disclosure act, HMDA, credit scoring

Abstract:
In this study, we test for the role of credit quality as a factor in limiting access to homeownership. While micro-level household data on wealth and income are available for assessing income- and wealth-based constraints to homeownership, lack of data on household credit ratings has precluded evaluation of credit quality as a potential barrier to homeownership. The study, for the first time, measures the relative importance of credit-, income-, and wealth-based constraints and estimates how the effects of these constraints have evolved over the past decade. The results show that financing constraints continue to have an important impact on potential homebuyers. The wealth constraint has the largest impact, although its importance declined substantially during the 1990s. Credit quality based constraints have become more important barriers to homeownership during the 1990s, mostly reflecting an increase in the number of households with impaired credit quality. Thus, both wealth and credit constraints persist as barriers to the attainment of homeownership.

Credit quality, homeownership, barriers to homeownership, household credit rating, financial constraints and homeownership

Abstract:
This paper reexamines claims that non-economic discrimination persists in mortgage loan origination decisions. I find that racial differences in outcomes do exist, as minorities fare worse regarding debt-to-income requirements but better for loan-to-value requirements. Overall, significant racial differentials exist only for "marginal" applicants and are not present for those with higher incomes or those with no credit problems. Thus, the claim that non-economic discrimination is a general phenomenon is refuted. Further, I can say little regarding the existence of discrimination among "marginal" applicants. To conclude that such discrimination exists, one must prove that the observed differences are not due to economic factors.

Abstract:
This article demonstrates the importance of separating the bundled good of housing into land and improvements, arguing that changes in a property's overall value will depend critically on how much of its total value is contained in the land, a proportion we call land leverage. The importance of this deconstruction is demonstrated by highlighting how land leverage helps to explain variation in house price appreciation in Wichita, Kansas. Noting that land leverage should be relevant for many real estate issues and policies, we highlight four specific areas where consideration of land leverage could significantly improve our understanding of real estate markets.

Abstract:
This paper argues for the importance of separating the bundled good of housing into land and improvements, because locational amenities - which often constitute a significant portion of property value - are typically capitalized into the value of land but not the value of the physical structure on a parcel of land. This means that changes in overall property value will depend critically on how much of its value is represented by land value, a proportion we call land leverage. The importance of this deconstruction is demonstrated by highlighting how land leverage helps to explain variation in house price appreciation in Wichita, Kansas. The use of Wichita to demonstrate a land leverage effect is noteworthy, because its house price dynamics bias the analysis against finding a land leverage effect - the effect of land leverage is likely to more pronounced in larger urban areas. Noting that land leverage should be relevant for many real estate issues and policies, we highlight four specific areas where consideration of land leverage could significantly improve our understanding of real estate markets.

Housing prices, land, home price index

Abstract:
The lax underwriting in non-prime mortgage markets is widely perceived as one cause of the recent difficulties in the housing market. Policy makers are currently considering moves such as enforcing more careful underwriting to provide additional discipline to mortgage markets. This research explores the possibility of another approach to supplement or replace some of these efforts, namely the use of policy to create incentives for Fannie Mae and Freddie Mac (together, the GSEs) to help 'check' behavior in non-prime markets. It relies on the hypothesis that the affordable housing goals established through the GSE Act have been effective incentives for GSEs to increase their loan purchases, and that borrowers shift from subprime to prime loans and such a substitution benefit those households receiving prime mortgages rather than the higher cost subprime loans.

We conduct empirical analysis regarding the hypothesis that increased GSE purchase activities make subprime lending less salient. Our results confirm the negative relationship between the growth in GSE market share and the growth in subprime market share over time, and that the impact of the GSEs on subprime lending tends to be stronger in high minority neighborhoods, where subprime lending has been concentrated and growing the fastest. Simulations show that a ten percent increase in GSE market share (e.g. from 20% to 22%) can cause 26,000 borrowers using prime instead of subprime loans, at a cost savings of about $1 billion. Our empirical results strongly support the concept that significant efficiency and equity gains can be achieved through appropriate regulatory structure.

Subprime lending, government-sponsored enterprise (GSE), affordable housing goals, mortgage credit, cost savings

Abstract:
Mounting foreclosures and recent disclosures of abusive lending practices have led many states to adopt new anti-predatory lending laws. Researchers have examined the impact of such laws on credit flows and the cost of credit. This research extends the literature by examining if the market responded to these laws by substituting different mortgage products for those restricted by anti-predatory lending provisions. The evidence indicates that the new laws were effective in restricting loans with targeted characteristics and that the market substituted other product types to maintain affordability in the face of these restrictions.

Real estate, mortgages, housing, abusive lending, predatory lending, mortgage products, product substitution, adjustment to prohibition

Abstract:
This paper examines the claim that observed racial differences in rejection rates for mortgage applications, which persist after controlling for many relevant factors, are due to racial differences in short-run earnings stability, which has not typically been included in empirical tests. The evidence does not support the proposition that blacks suffer from greater earnings instability than comparable whites, as few consistent and significant racial differences in earnings volatility are found in a sample of potential home buyers. Only in the case of drastic earnings shocks with persistent effects does the possibility of significant racial differences reasonably remain. In general, racial differences in earnings instability appear to be minor and are unlikely to result in substantial differences in creditworthiness.

Abstract:
Books reviewed:

Industrial Location Economics, Philip McCann.

The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement, Stephen L. Ross and John Yinger.

Start-Up Factories: High-Performance Management, Job Quality, and Regional Advantage, Peter B. Doeringer, Christine Evans-Klock, and David G. Terkla.

Economic Integration and Development: Has Regionalism Delivered for Developing Countries?, Mordechai E. Kreinin and Michael G. Plummer.

Where the Buffalo Roam: Restoring America's Great Plains, Anne Matthews.

Metropolitan Growth Planning in California, 19002000, Elisa Barbour.

Work in the New Economy: Flexible Labor Markets in Silicon Valley, Chris Benner.

OECD Territorial Reviews: Canada, Organisation for Economic Co-operation and Development (OECD).

OECD Territorial Outlook, 2001 edition, Organisation for Economic Co-operation and Development (OECD).

OECD Territorial Reviews: Tzoumerka, Greece, Organisation for Economic Co-operation and Development (OECD).

Regional Development in Greece, Nicholas Konsolas, Athanassios Papadaskalopoulos, and Ilias Plaskovitis.

Havana: Two Faces of the Antillean Metropolis, Joseph L. Scarpaci, Roberto Segre, and Mario Coyula.

Urban Ecological Research Methods Applied to the Cleveland, Ohio Metropolitan Area, Adrien G. Humphreys and Ashok K. Dutt.

The Voluntary City: Choice, Community, and Civil Society, David T. Beito, Peter Gordon, and Alexander Tabarrok.

The Region in the New Economy: An International Perspective on Regional Dynamics in the 21 st Century, Yoshiro Higano, Peter Nijkamp, Jacques Poot, and Kobus Van Wyk.

International Handbook of Urban Systems: Studies of Urbanization and Migration in Advanced and Developing Countries, H. S. Geyer.

The World of Cities: Places in Comparative and Historical Perspective, Anthony M. Orum and Xiangming Chen.

Social Change and Sustainable Transport, William R. Black and Peter Nijkamp.

Community and Quality of Life: Data Needs for Informed Decision Making, Committee on Identifying Data Needs for Place-Based Decision Making, Committee on Geography, National Research Council.

Abstract:
This research examines the benefits to individual workers hired under California's enterprise zone (EZ) program. The analysis reveals that EZ program participation has a positive impact on both wages and adjusted gross income of EZ participants, and the benefits appear to be greater for taxpayers with very low initial income. It is unclear whether the income boost from EZ participation is permanent or transitory. We also find that participation in the EZ program increases the likelihood that an individual will file a tax return. Because this is a case study, we caution that additional analysis is needed to fully determine the extent to which these results can be generalized.

Abstract:
There is a seeming paradox regarding the affordable housing goals: GSE activities in targeted communities have increased under the goals but there has been little measurable improvement in housing market conditions in these communities. This paper seeks to reconcile this paradox by focusing on linkage between GSE purchases and FHA activities. We present a simple theoretical framework suggesting that GSE activities can have a feedback effect on FHA. More aggressive GSE pursuit of targeted borrowers under the affordable housing goals induces potential FHA borrowers with best credit quality to use the conventional market. Changes to the housing market will depend on the FHA response to the loss of its best credits, with many different possible outcomes for credit supply and homeownership, including scenarios in which they remain effectively unchanged. While market-levelbenefits might not be forthcoming, the shift from FHA to less costly conventional loans is clearly beneficial for affected borrowers. Two-stage least squares estimates of the relationship between GSE and FHA lending after the affordable housing goals were made more binding are found to be consistent with the theoretical predictions.

affordable housing goals, GSE, FHA, homeownership, underserved neighborhoods, credit rationing

Abstract:
This study explores how Community Reinvestment Act (CRA) protests and their resolution affect the market value of merging banks. We find, in contrast to earlier research, that CRA-related events are not associated with significant negative market reactions for either bidder or target institutions. Rather, the market does not seem to respond strongly to CRA-related events at all. The results appear to stem from the choice of an estimation period for establishing an institution's baseline stock-market price dynamics that does not include abnormal security price movements induced by the merger announcement.

Community Reinvestment Act, bank mergers, market reaction, event study, estimation period

Abstract:
This paper explores the hypothesis that anti-discrimination legislation has been an important factor in shaping the evolution of minority homeownership spatial trends. It does so by studying homeownership patterns of black and non-black households during the 1970s, 1980s, and 1990s using Census data and data that proxies for the level of enforcement of the Fair Housing Act over time. The results provide unambiguous support for the view that enforcement has been a key factor for black homeownership since the 1970s, as we find a consistent positive relationship between fair housing policy enforcement and black homeownership growth. In addition, we find clear evidence that black homeowners gained access to more diverse and higher-income neighborhoods over time, with the shift occurring beginning in the 1980s and continuing in the 1990s. Importantly, both of these results are race-specific results, as there are no such patterns among non-black homeowners. Taken together, the results are consistent with the view that the housing-related civil rights legislation passed during the 1960s and 1970s helped alter, and reduce, the role that race played in housing markets.

Abstract:
This paper assess cultural affinity as a potential explanation for observed racial disparities in mortgage rejection rates. Two formulations of the theory have evolved in the literature. The taste-based cultural affinity hypothesis asserts that lenders have a blanket preference for members of the same race, while the common bond hypothesis asserts that cultural affinity allows lenders to better assess the credit quality of members of the same race. The analysis involves tests that focus on the experiences of applicants with marginal credit quality, as the two theories offer conflicting predictions regarding their application patterns and treatment by lenders. The results of these tests provide weak support for the existence of taste-based cultural affinity, but contradict the predictions of the common bond form of the theory.

cultural affinity, mortgages, discrimination

Abstract:
Homeownership among U.S. families increased notably in recent years, from 63.9 percent in 1989 to 66.2 percent in 1998. This paper examines this trend and the factors contributing to it. We find that (1) homeownership rose for all racial, ethnic, and income groups; (2) the differences in homeownership between minority and nonminority families and between middle-income and lower-income families declined significantly; and (3) changes in family-related characteristics explain homeownership trends among only the top two income quintiles. Among the lower two income quintiles, family-related characteristics explain almost none of the increase in homeownership. This pattern suggests that the favorable economic climate of the last decade, changes in mortgage and housing markets, and changes in the regulations governing those markets account for the increase in homeownership among lower-income families.

homeownership, race, income, community reinvestment act, credit scoring