The Role of Neighborhood Characteristics in Mortgage Default Risk: Evidence from New York City
New York University (NYU) - Robert F. Wagner Graduate School of Public Service
New York University - Robert F. Wagner Graduate School of Public Service
New York University School of Law
Federal Reserve Bank of New York
October 24, 2011
NYU Law and Economics Research Paper No. 11-36
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
Date posted: October 24, 2011
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