Neighborhood Patterns of Subprime Lending: Evidence from Disparate Cities

31 Pages Posted: 2 Sep 2004

See all articles by Paul S. Calem

Paul S. Calem

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Jonathan E. Hershaff

Board of Governors of the Federal Reserve System

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: June 8, 2004

Abstract

This paper estimates, for 7 cities, a model of prime versus subprime allocation of loans in 1997 and 2002 based on both individual loan and neighborhood attributes. The paper is directly interested in the effect of neighborhood racial and ethnic composition on the likelihood of receiving a subprime loan. The paper also allows for interaction of borrower race and ethnicity with neighborhood attributes. A unique feature of the paper is that it provides additional neighborhood controls for the aggregate level of credit risk and the neighborhood level of equity risk.

The paper finds some evidence for tightening loan standards over the 5-year period in the subprime market. In both years, even with risk controls, the minority share of neighborhood is consistently significant and positively related to subprime share. Furthermore, neighborhood education level is consistently significant and negatively related to subprime lending.

Keywords: Subprime mortgages, Mortgage lending and race, Mortgage lending and neighborhood

Suggested Citation

Calem, Paul S. and Hershaff, Jonathan E. and Wachter, Susan M., Neighborhood Patterns of Subprime Lending: Evidence from Disparate Cities (June 8, 2004). U of Penn, Inst. for Law & Econ Research Paper 04-14. Available at SSRN: https://ssrn.com/abstract=583102 or http://dx.doi.org/10.2139/ssrn.583102

Paul S. Calem

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Jonathan E. Hershaff

Board of Governors of the Federal Reserve System ( email )

20th & C Streets, NW
Washington, DC 20551
United States

Susan M. Wachter (Contact Author)

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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