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Subprime Mortgages, Foreclosures, and Urban Neighborhoods

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  • Gerardi Kristopher

    () (Federal Reserve Bank of Atlanta)

  • Willen Paul

    () (Federal Reserve Bank of Boston)

Abstract

This paper analyzes the impact of the subprime crisis on urban neighborhoods in Massachusetts. The topic is explored using a dataset that matches race and income information from HMDA data with property-level transaction data from Massachusetts Registry of Deeds offices. With this data, we show that much of the subprime lending in the state was concentrated in urban neighborhoods, and that minority homeownerships created with subprime mortgages have proven exceptionally unstable in the face of rapid price declines. The evidence, in Massachusetts, suggests that subprime lending did not, as is commonly believed, lead to a substantial increase in homeownership by minorities, but instead generated turnover in properties owned by minority residents. Furthermore, we argue that the particularly dire foreclosure situation in urban neighborhoods actually makes it somewhat easier for policymakers to provide remedies.

Suggested Citation

  • Gerardi Kristopher & Willen Paul, 2009. "Subprime Mortgages, Foreclosures, and Urban Neighborhoods," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(3), pages 1-37, March.
  • Handle: RePEc:bpj:bejeap:v:9:y:2009:i:3:n:12
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    Cited by:

    1. Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2016. "The Vulnerability of Minority Homeowners in the Housing Boom and Bust," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 1-27, February.
    2. Christopher Foote & Kristopher Gerardi & Lorenz Goette & Paul Willen, 2010. "Reducing Foreclosures: No Easy Answers," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 89-138, National Bureau of Economic Research, Inc.
    3. Beryl Y Chang & Caroline E. W. Glackin, 2012. "The Mortgage Foreclosure Rage: A Behavioral Perspective," Journal of Economics and Behavioral Studies, AMH International, vol. 4(11), pages 635-648.
    4. Christopher L. Foote & Lara Loewenstein & Paul S. Willen, 2016. "Cross-sectional patterns of mortgage debt during the housing boom: evidence and implications," Working Papers 16-12, Federal Reserve Bank of Boston.
    5. Kristopher S. Gerardi & Paul S. Willen & David Hao Zhang, 2020. "Mortgage Prepayment, Race, and Monetary Policy," FRB Atlanta Working Paper 2020-22, Federal Reserve Bank of Atlanta.
    6. Rebbeca Tesfai, 2017. "Continued Success or Caught in the Housing Bubble? Black Immigrants and the Housing Market Crash," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 36(4), pages 531-560, August.
    7. Charles Towe & Chad Lawley, 2013. "The Contagion Effect of Neighboring Foreclosures," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 313-335, May.
    8. Janet Currie & Erdal Tekin, 2015. "Is There a Link between Foreclosure and Health?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 63-94, February.
    9. Thomas P. Boehm & Alan M. Schlottmann, 2017. "Mortgage Payment Problem Development and Recovery: A Joint Probability Model Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 55(4), pages 476-510, November.
    10. Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2014. "Race, Ethnicity and High-Cost Mortgage Lending," NBER Working Papers 20762, National Bureau of Economic Research, Inc.
    11. Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2018. "What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders," Review of Financial Studies, Society for Financial Studies, vol. 31(1), pages 175-205.
    12. Marsha J. Courchane & Stephen L. Ross, 2019. "Evidence and Actions on Mortgage Market Disparities: Research, Fair Lending Enforcement, and Consumer Protection," Housing Policy Debate, Taylor & Francis Journals, vol. 29(5), pages 769-794, September.
    13. Sorenson, David J., 2015. "Loan Characteristics, Borrower Traits, and Home Mortgage Foreclosures: The Case of Sioux Falls, South Dakota," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 45(2).
    14. Prabal Chakrabarti, 2009. "Massachusetts’ efforts to address foreclosed properties," Community Development Investment Review, Federal Reserve Bank of San Francisco, issue 1, pages 65-72.
    15. Nika Lazaryan & Urvi Neelakantan, 2016. "Monetary Incentives and Mortgage Renegotiation Outcomes," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 147-168.
    16. Jörg Bibow, 2010. "Alternative Strategien der Budgetkonsolidierung in Österreich nach der Rezession," IMK Studies 03-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    17. Mayock, Tom & Malacrida, Rachel Spritzer, 2018. "Socioeconomic and racial disparities in the financial returns to homeownership," Regional Science and Urban Economics, Elsevier, vol. 70(C), pages 80-96.
    18. Adelino, Manuel & Gerardi, Kristopher & Willen, Paul S., 2013. "Why don't Lenders renegotiate more home mortgages? Redefaults, self-cures and securitization," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 835-853.
    19. Simlai, Prodosh, 2019. "Subprime credit, idiosyncratic risk, and foreclosures," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 175-189.
    20. Li, Phillip & Mayock, Tom, 2019. "Mortgage characteristics and the racial incidence of default," Journal of Housing Economics, Elsevier, vol. 46(C).
    21. Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2016. "The Vulnerability of Minority Homeowners in the Housing Boom and Bust," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 1-27, February.
    22. Doviak, Eric & MacDonald, Sean, 2011. "Who defaults on their home mortgage?," MPRA Paper 34275, University Library of Munich, Germany.

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