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Neighborhood Subprime Lending and the Performance of Community Reinvestment Mortgages

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Author Info

  • Lei Ding

    ()
    (Wayne State University)

  • Roberto G. Quercia

    ()
    (University of North Carolina-Chapel Hill)

  • Janneke Ratcliffe

    ()
    (University of North Carolina-Chapel Hill)

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    Abstract

    This study analyzes the spillover effect of the spatial concentration of subprime lending on the performance of recently originated community reinvestment mortgages targeting low- to moderate-income borrowers. The level of subprime lending in a census tract is found to be a significant predictor of the default and prepayment probability of the community reinvestment loans in the same neighborhoods. The results suggest that the concentration of subprime lending and the resulting clusters of foreclosed properties reduce neighborhood property values and increase price volatility. The lowered property values and the increased volatility increase the default probability of borrowers holding any loan product, including community reinvestment mortgages. This study provides new evidence concerning the negative impacts of the concentration of subprime lending in certain neighborhoods.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol32n03/05.341_376.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 32 (2010)
    Issue (Month): 3 ()
    Pages: 341-376

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    Handle: RePEc:jre:issued:v:32:n:3:2010:p:341-376

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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