48 Pages Posted: 24 Oct 2011
Date Written: October 24, 2011
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.
Keywords: mortgage, default, neighborhoods, race
Suggested Citation: Suggested Citation
Chan, Sewin and Gedal, Michael and Been, Vicki and Haughwout, Andrew, The Role of Neighborhood Characteristics in Mortgage Default Risk: Evidence from New York City (October 24, 2011). NYU Law and Economics Research Paper No. 11-36. Available at SSRN: https://ssrn.com/abstract=1948569 or http://dx.doi.org/10.2139/ssrn.1948569