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Neighborhood Subprime Lending and the Performance of Community Reinvestment Mortgages

Author

Listed:
  • Lei Ding

    () (Wayne State University)

  • Roberto G. Quercia

    () (University of North Carolina-Chapel Hill)

  • Janneke Ratcliffe

    () (University of North Carolina-Chapel Hill)

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.

Suggested Citation

  • Lei Ding & Roberto G. Quercia & Janneke Ratcliffe, 2010. "Neighborhood Subprime Lending and the Performance of Community Reinvestment Mortgages," Journal of Real Estate Research, American Real Estate Society, vol. 32(3), pages 341-376.
  • Handle: RePEc:jre:issued:v:32:n:3:2010:p:341-376
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    References listed on IDEAS

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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