Although the rise in subprime lending and the ensuing wave of foreclosures was partly a result of market forces that have been well-identified in the literature, in the United States it was also a highly racialized process. We argue that residential segregation created a unique niche of poor minority clients who were differentially marketed risky subprime loans that were in great demand for use in mortgage-backed securities that could be sold on secondary markets. We test this argument by regressing foreclosure actions in the top 100 U.S. metropolitan areas on measures of black, Hispanic, and Asian segregation while controlling for a variety of housing market conditions, including average creditworthiness, the extent of coverage under the Community Reinvestment Act, the degree of zoning regulation, and the overall rate of subprime lending. We find that black residential dissimilarity and spatial isolation are powerful predictors of foreclosures across U.S. metropolitan areas. In order to isolate subprime lending as the causal mechanism whereby segregation influences foreclosures, we estimate a two-stage least squares model that confirms the causal effect of black segregation on the number and rate of foreclosures across metropolitan areas. In the United States segregation was an important contributing cause of the foreclosure crisis, along with overbuilding, risky lending practices, lax regulation, and the bursting of the housing price bubble.

In this article, we describe how residential segregation and individual racial disparities generate racialized patterns of subprime lending and lead to financial loss among black borrowers in segregated cities. We conceptualize race as a cumulative disadvantage because of its direct and indirect effects on socioeconomic status at the individual and neighborhood levels, with consequences that reverberate across a borrower's life and between generations. Using Baltimore, Maryland as a case study setting, we combine data from reports filed under the Home Mortgage Disclosure Act with additional loan-level data from mortgage-backed securities. We find that race and neighborhood racial segregation are critical factors explaining black disadvantage across successive stages in the process of lending and foreclosure, controlling for differences in borrower credit scores, income, occupancy status, and loan-to-value ratios. We analyze the cumulative cost of predatory lending to black borrowers in terms of reduced disposable income and lost wealth. We find the cost to be substantial. Black borrowers paid an estimated additional 5 to 11 percent in monthly payments and those that completed foreclosure in the sample lost an excess of $2 million in home equity. These costs were magnified in mostly black neighborhoods and in turn heavily concentrated in communities of color. By elucidating the mechanisms that link black segregation to discrimination we demonstrate how processes of cumulative disadvantage continue to undermine black socioeconomic status in the United States today.

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Scholars have shown that diversity depresses public goods provision. In U.S. cities, racial and ethnic divisions could seriously undermine investment. However, diverse cities spend significant amounts on public goods. We ask how these communities overcome their potential collective action problem. Using a new data set on more than 3,000 municipal bond elections, we show that strategic politicians encourage cooperation. Diversity leads officials to be more selective about requesting approval for investment and more attentive to coalition building. We show that diverse communities see fewer bond elections, but that the bonds proposed are larger and pass at higher rates. Diverse cities tend to offer voters bonds with more spending categories and are more likely to hold referenda during general elections. As a result, diverse cities do just as well as homogenous cities in issuing voter-authorized debt. Thus, political elites perform an important mediating function in the generation of public goods.

Recent studies have used statistical methods to show that minorities were more likely than equally qualified whites to receive high-cost, high-risk loans during the U.S. housing boom, evidence taken to suggest widespread discrimination in the mortgage lending industry. The evidence, however, was indirect, being inferred from racial differentials that persisted after controlling for other factors known to affect the terms of lending. Here we assemble a qualitative database to generate direct evidence of discrimination. Using a sample of 220 statements randomly selected from documents assembled in the course of recent fair lending lawsuits, we code texts for evidence of individual discrimination, structural discrimination, and potential discrimination in mortgage lending practices. We find that 76 percent of the texts indicated the existence of structural discrimination, with only 11 percent suggesting individual discrimination alone. We then present a sample of texts that were coded as discriminatory to reveal the way in which racial discrimination was embedded within the social structure of U.S. mortgage lending, and to reveal the specific microsocial mechanisms by which this discrimination was effected.