The Vulnerability of Minority Homeowners in the Housing Boom and Bust

Abstract

This paper examines mortgage outcomes for a large, representative sample of individual home purchases and refinances linked to credit scores in seven major US markets in the recent housing boom and bust. We find that among those with similar credit scores, black and Hispanic homeowners had much higher rates of delinquency and default in the downturn. These differences are not explained by the likelihood of receiving a subprime loan or by differential exposure to local shocks in the housing and labor market and are especially pronounced for loans originated near the peak of the boom. There is also heterogeneity within minorities: black and Hispanics that live in areas with lower employment rates and that have high debt to income ratios are the driving force of the observed racial differences in foreclosures and delinquencies. Our findings suggest that those black and Hispanic homeowners drawn into the market near the peak were especially vulnerable to adverse economic shocks and raise serious concerns about homeownership as a mechanism for reducing racial disparities in wealth.