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Subprime mortgages: what, where, and to whom?

  • Chris Mayer
  • Karen Pence
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    We explore the types of data used to characterize risky subprime lending and consider the geographic dispersion of subprime lending. First, we describe the strengths and weaknesses of three different datasets on subprime mortgages using information from LoanPerformance, HUD, and HMDA. These datasets embody different definitions of subprime mortgages. We show that estimates of the number of subprime originations are somewhat sensitive to which types of mortgages are categorized as subprime. Second, we describe what parts of the country and what sorts of neighborhoods had more subprime originations in 2005, and how these patterns differed for purchase and refinance mortgages. Subprime originations appear to be heavily concentrated in fast-growing parts of the country with considerable new construction, such as Florida, California, Nevada, and the Washington DC area. These locations saw house prices rise at faster-than-average rates relative to their own history and relative to the rest of the country. However, this link between construction, house prices, and subprime lending is not universal, as other markets with high house price growth such as the Northeast did not see especially high rates of subprime usage. Subprime loans were also heavily concentrated in Zip codes with more residents in the moderate credit score category and more black and Hispanic residents. Areas with lower income and higher unemployment had more subprime lending, but these associations are smaller in magnitude.

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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2008-29.

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    Date of creation: 2008
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    Handle: RePEc:fip:fedgfe:2008-29
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    1. Yuliya Demyanyk & Otto Van Hemert, 2008. "Understanding the subprime mortgage crisis," Proceedings 1092, Federal Reserve Bank of Chicago.
    2. Yuliya Demyanyk & Otto Van Hemert, 2007. "Understanding the subprime mortgage crisis," Supervisory Policy Analysis Working Papers 2007-05, Federal Reserve Bank of St. Louis.
    3. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
    4. Stuart A. Gabriel & Stuart S. Rosenthal, 2004. "Homeownership in the 1980s and 1990s: Aggregate Trends and Racial Gaps," Working Paper 8596, USC Lusk Center for Real Estate.
    5. Anthony Pennington-Cross & Giang Ho, 2010. "The Termination of Subprime Hybrid and Fixed-Rate Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(3), pages 399-426.
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