Measuring the Effect of Subprime Lending on Neighborhood Foreclosures

Abstract

Since the early 1990s, there has been a very large growth in mortgages made by so-called subprime lenders, which specialize in lending to borrowers with credit history problems. One reason for concern about this trend is that it has been associated with a large and simultaneous rise in foreclosures, which can entail significant costs not just for those directly affected but also for surrounding neighborhoodsand larger communities. This study usesmultivariate estimations to quantify the impact of subprime lending on neighborhood foreclosure levels. After controlling for neighborhood demographics and economic conditions, the authors find that subprime loans lead to foreclosures at far greater rates than do prime loans. Moreover, subprime lending appears to account for a substantial share of foreclosure activity in high-foreclosure neighborhoods.

Spatial Analysis of Clustering of Foreclosures in the Poorest-Quality Housing Urban Areas: Evidence from Catalan Cities

“…In the US context, there are also various studies based on geolocated information about foreclosures using different sources. For instance, Immergluck and Smith studied the impact of subprime lending on neighborhood foreclosure levels in the city of Chicago [53]; Pfeiffer and Molina examined the spatial logics of the resale of foreclosed properties in Southern California Latino neighborhoods [54]; and Zhang and McCord conducted a spatial analysis on the impact of housing foreclosures on residential burglary in the city of Louisville [55]. Using a similar approach, the Anti-Eviction Mapping Project [56] presents an innovative way to collectively build a geolocated dataset of evictions in the San Francisco Bay area.…”

An Analysis of the Relationship Between Housing Foreclosures, Lending Practices, and Neighborhood Ecology: Evidence from a Distressed County

“…The third indicator looks at subprime loans or, more accurately, loans originated with subprime lenders. To be sure, all subprime loans should not be considered predatory, but analysts have scrutinized the growth and geographical distribution of such loans with some concern (Immergluck and Smith 2005). Subprime loans are more likely to be found in poor neighborhoods-perhaps understandable given the poor credit history of many residents-but are also disproportionately found in African American neighborhoods.…”

“…Some of these discrepancies can be accounted for by race, as African American borrowers are more likely to receive a subprime loan, even when controlling for credit and location variables (Pennington-Cross, Yezer, and Nichols 2000). Because of the clear relationship between subprime lending and foreclosures, those neighborhoods with a high incidence of subprime lending are often the same neighborhoods where foreclosures are disproportionately concentrated (Immergluck and Smith 2005).…”

Financializing space, spacing financialization

“…Moreover, as investigations into the causes of the sub-prime crisis have proceeded, so it appears that at least part of the cause is yet another episode in a long history of egregious mis-selling (see Doran, 2007;Connon, 2007) and predatory lending (Farris, 2004;Immergluck and Smith, 2005;Wyly, et al, 2007) within the retail financial services industry. In so doing these financial instruments entangled many individuals and households within financial obligations that they had no prospect of honouring, given the retrospective identification of many 'assets' being produced through so-called NINJA mortgages; that is, loans advanced to individuals with no income, no job and no assets.…”