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The Role of Neighborhood Characteristics in Mortgage Default Risk: Evidence from New York CitySewin ChanNew York University (NYU) - Robert F. Wagner Graduate School of Public Service Michael GedalNew York University - Robert F. Wagner Graduate School of Public Service Vicki BeenNew York University School of Law Andrew HaughwoutFederal Reserve Bank of New York October 24, 2011 NYU Law and Economics Research Paper No. 11-36 Abstract: 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.
Number of Pages in PDF File: 48 Keywords: mortgage, default, neighborhoods, race working papers seriesDate posted: October 24, 2011Suggested CitationContact Information
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