Subprime Lending and Neighborhood Characteristics: Spatial Patterns by Mortgage Category

Abstract

The issue of subprime lending, its neighborhood patterns, and its impact on the financial meltdown have drawn significant attention during recent years. However, much of the previous research has focused on subprime mortgages in general. It is still not clear how subprime loans by category relate to neighborhoods. This research compared neighborhood effects of different types of loans in two Ohio counties and found that, with the exception of subprime investor loans, neighborhood effects did not have significant differences among all other types of loans between the two counties. After controlling for other neighborhood factors, it was found that: subprime loans and subprime refinance loans negatively related to neighborhood median housing value; home purchase loans were concentrated in predominately Black neighborhoods; and investor purchase loans were significantly related to percentage of female-headed households in the neighborhood. These findings complement the common belief that subprime loans tend to concentrate in low-income minority neighborhoods and reinstate that neighborhood effects of different types of subprime loans vary in different places. This understanding can help policy makers tailor foreclosure prevention and mitigation programs based on place.