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Emergence of subprime lending in minority neighborhoods

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  • Eglė Jakučionytė
  • Swapnil Singh

Abstract

Subprime lending is concentrated in minority neighborhoods. However, the literature provides little evidence for what led to this concentration. We use the endorsement of credit scores in mortgage underwriting by the Government Sponsored Enterprises (GSEs) in 1995 to answer this question. We show that prime lenders were substituted by subprime lenders in minority neighborhoods. As a result, the share of subprime lending increased by 5 percentage points in minority neighborhoods, relative to nonminority neighborhoods. Prime lenders with a stronger relationship with the GSEs reduced their lending in minority neighborhoods more, and the level of securitization by the GSEs in minority neighborhoods also decreased.

Suggested Citation

  • Eglė Jakučionytė & Swapnil Singh, 2023. "Emergence of subprime lending in minority neighborhoods," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(6), pages 1547-1583, November.
    • Handle: RePEc:bla:reesec:v:51:y:2023:i:6:p:1547-1583
    DOI: 10.1111/1540-6229.12449
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