Race,class and spatial dimensions of mortgage lending practices and residential foreclosures

The American dream of homeownership for low‐income minority households has been sustained by reliance on a complex web of public programs and private institutions during the past several decades. This paper explores the racial, class and spatial dimensions of mortgage lending practices and residential foreclosures for underserved neighborhoods in Cuyahoga County, Ohio using multiple regression analysis with a spatial‐lag model. This paper shows different spatial dimensions of subprime and government‐backed loans. It reveals that subprime loans are the most influential factor explaining neighborhood foreclosure rates. This paper also demonstrates that neighborhoods with low‐income and minority households have a higher likelihood of experiencing higher rates of foreclosure. We recommend introducing targeted government programs in areas avoided by traditional lenders. These programs could reduce the foreclosure rate for homeowners that have the ability to sustain their homeownership.     

Financing Home Purchase in China,with Special Reference to Guangzhou

This paper examines the role of personal housing loans in advancing homeownership in urban China. The focus is on the Housing Provident Fund (HPF) and commercial bank mortgage loans. National data show that the use of HPF loans and bank loans has only become more common since 1998, but their share of the total expenditure on home purchase remains relatively small. Data derived from household surveys conducted in Guangzhou in 2001 and 2005 show that personal savings and parental contributions are the most important sources of home finance. The affordability of housing is closely tied to personal savings. To date, access to mortgage finance has played a relatively minor role in China's drive towards homeownership.     

Loan‐to‐value ratios in Sweden. The impact of financial deregulation

We ask how financial deregulation in Sweden during the 1980s affected housing finance by studying data on loan‐to‐value (LTV) ratios for home owners who moved recently. Accounting for the impact of demographic and economic determinants we find that LTV ratios were higher between 1985 and 1987 than in earlier and later years. This time pattern suggests that the deregulation of the mortgage institutions and the removal of the loan rate ceiling on banks in 1983 and 1984 were more important than abolishment of the bank loan ceiling in late 1985. They also indicate a decrease in loan demand and/or supply as early as 1988, i.e., well before the banking crisis.     

FROM MINOR TO MAJOR PLAYER: THE GEOGRAPHY OF FHA LENDING DURING THE U.S. MORTGAGE CRISIS

ABSTRACT: At various points in its history, the Federal Housing Administration (FHA) has had particularly large impacts on mortgage and housing markets in the United States. During the early to middle 2000s, FHA lending dwindled to historically low shares of the mortgage market as subprime lending boomed, with some questioning the need for the agency's continued existence. After the subprime crisis in 2007 and pullbacks by conventional lenders, however, the FHA played one of its historic roles—the mortgage lender of last resort—and its lending surged, reaching approximately 40% of home purchase lending by the end of 2008, a level not seen since World War II. This article examines the differences in FHA activity across and, especially, within U.S. metropolitan areas in late 2008, a peak period of the crisis. The focus is on loans with moderate loan‐to‐value ratios, among which FHA status varies the most. Factors that affect the likelihood of such loans being FHA‐insured include credit score, regional housing price trends, neighborhood demographics (including racial composition), and a variety of other factors. Controlling for many other loan‐level and zip code characteristics, the odds of a loan being FHA‐insured increase substantially when going from a predominantly white to an otherwise similar predominantly black zip code.     

Applying Black Threat Theory,Urban Regime Theory,and Deracialization: The Memphis Mayoral Elections of 1991, 1995, and 1999

Abstract: Until 1991 Memphis was the only major US city with a majority‐black population that had not elected a black mayor. Various explanations, including in‐fighting and competition among black city leaders and citizen aversion to candidates who attempt cross‐racial appeals, have been offered to explain the lack of an elected black mayor of Memphis prior to 1991. We first investigate how Herenton overcame these electoral obstacles to become Memphis’ first elected black mayor in 1991, and then won reelection in two consecutive reelection attempts. We then apply Herenton's campaign strategy and the vote in these elections to several popular theories of voting and election strategy in urban elections—black‐threat theory, urban regime theory, and deracialization. Our findings point to the new trend of biracial coalitions in the urban setting and suggest the importance of reconsidering the traditional theories of racial politics, such as the black threat thesis.     

The changing determinants of inter‐racial home ownership disparities: New York City in the 1990s

The 1990s witnessed significant changes in home ownership policy that were designed to reduce disparities in home ownership rates between whites and non‐whites. The study finds evidence that the policies were, indeed, effective in reducing home ownership disparities between whites and non‐whites. In this study data from the New York City Housing and Vacancy Survey (NYCHVS) are used to examine ethnic/racial home ownership rate disparities. Decompositions are performed to determine the component of home ownership rate differentials due to ethnic/racial group characteristics versus ability to translate those characteristics into home ownership. Presumably, a shift in public policy to be more ethnically and racially inclusive should reflect a change in home ownership rate disparities and, more particularly, a change in the component of those disparities attributed to differential ability to translate group characteristics into home ownership rates. Hence, this study addresses the success of recent policies to foster the opportunity of achieving the ‘American dream’ for non‐white families.     

Building Society Demutualisation in the UK

In the mid-1990s several building societies in the UK ceased to be mutual organisations and became public limited companies (plcs). This paper seeks to explain this change, which has ended the building societies' historic dominance of the mortgage market. The thesis that mutuality had become redundant as an ownership form is rejected. Structural changes in the industry have presented mortgage lenders with strategic choices, rather than dictated a single viable course. Structural change necessitated demutualisation only in the limited cases where a larger plc took over a small mutual. Case studies of each of the building societies that have converted indicated four other principal reasons for demutualisation: (1) an attempt to maintain full organisational independence; (2) an attempt to maintain operational independence; (3) a growth by acquisition strategy; and (4) a members' revolt. Along with the continued commitment to mutuality of some societies, these represent a variety of responses to structural change.     

The Air is Always Cleaner on the Other Side: Race,Space, and Ambient Air Toxics Exposures in California

Abstract: Environmental justice advocates have recently focused attention on cumulative exposure in minority neighborhoods due to multiple sources of pollution. This article uses U.S. EPA's National Air Toxics Assessment (NATA) for 1996 to examine environmental inequality in California, a state that has been a recent innovator in environmental justice policy. We first estimate potential lifetime cancer risks from mobile and stationary sources. We then consider the distribution of these risks using both simple comparisons and a multivariate model in which we control for income, land use, and other explanatory factors, as well as spatial correlation. We find large racial disparities in California's “riskscape” as well as inequalities by other factors and suggest several implications for environmental and land use policy.     

Encouraging Mortgage Lending in 'Underserved' Areas: The Potential for Expanding Home Ownership in the US

This study estimates the size of the potential US home owner market and examines the relative default risks associated with expanded home ownership among lower-income, 'underserved' households. Using the 1990 SIPP database, a logit model is developed that predicts the likelihood that a renter household will move into home ownership during an 18-month period. Parameters are estimated using a white, suburban renter sub-population. These are then applied to a nationally-representative sample of renter householdsto produce an aggregate,expected number of transitions into home ownership. The difference between this expected number and the actual number of transitions represents the baseline estimate of the number of additional transitions that might be expected were lending practices and conditions prevailing for whites in suburban areas to be applied everywhere else. The relative default risks are assessed of these potential home owners and the renter households who moved into home ownership by applying a well-known default probability equation. The resulting distributions of default probabilities are then compared, using low- and median-priced housing cost assumptions and for several income groups. In the extended phase of the analysis, an estimation is made of various pools of prospective home owners that might be tapped with more aggressive lending policies. These prospective home owners have both a large propensity to make the move into home ownership (relative to those that actually do), and do not present above average default risks were they to do so. The baseline analyses indicate that just over 600 000 (2.1 per cent) more US renter households would become home owners during the period if they could buy low-cost homes and the underwriting practices and opportunitiesfound in white suburban areas were applied uniformly across the nation. If they were limited to purchase of a median-cost home, this figure drops slightly to 522 000 (1.85 per cent). Extended analyses suggest that up to 2.71 million low-to-moderateincome renter households (7.6 per cent of all renter households) should prove more attractive to mortgage lenders than the average first-time home buyer and possess a relatively high probability of moving into home ownership.     

Mortgage Markets: Why US and EU Markets Are So Different

The US mortgage market has been characterised by a number of factors that have encouraged the growth of securitisation and this, in turn, has substantially reduced the need for mortgage lenders to hold own funds. The situation in Europe is rather different (see Boleat, 1985; Coles, 1999; European Mortgage Federation 1996). This paper looks at the key differences between the US and Europe, their implications with regard to capital adequacy regulation and why a similar evolution for Europe seems unlikely.     

NEIGHBORHOODS,RACE, AND HEALTH: EXAMINING THE RELATIONSHIP BETWEEN NEIGHBORHOOD DISTRESS AND BIRTH OUTCOMES IN PITTSBURGH

One of the major challenges in researching neighborhoods and birth outcomes today concerns access to neighborhood‐level data. The present study combines local data from the Pittsburgh Neighborhood and Community Information System with data from the national American Community Survey to examine the relationship between adverse birth outcomes (i.e., low birth weight, preterm birth, and infant mortality) and neighborhood distress. We examine racial differences in neighborhood distress using the census‐based measure of socioeconomic disadvantage as well as measures of abandonment from local data sources, including vacancy, violence, tax delinquency, property sales, and property conditions. Results reveal significant differences in neighborhood distress by race for every aspect examined. Furthermore, findings show that abandonment‐related measures explain a substantial portion of variation in adverse birth outcomes, with tax delinquency explaining more variation than socioeconomic disadvantage. We discuss the implications of these findings for future research and for strategies to reduce racial disparities in birth outcomes.     

NEIGHBORHOOD RACIAL COMPOSITION AND MORTGAGE LENDING: City and Suburban Differences

ABSTRACT: Racially discriminatory mortgage lending patterns have been documented in several cities, despite the fact that such practices are illegal under the Federal Fair Housing Act and other federal and state laws. This study finds that in Milwaukee, as in several other metropolitan areas, racial composition of neighborhood is negatively associated with mortgage lending activity by depository institutions even after the effects of income, condition of housing, and related population and neighborhood characteristics are taken into consideration. However, the effects of race are not linear and are different in the city and in the suburbs. In the city, the effects of race were largest in integrated areas, whereas in the suburbs the effects of race were positive when few minorities were present and negative in those areas having large concentrations of minority residents.     

Distance decay function in criminal behavior: a case of Israel

Nearly a half of property crimes in major cities of Israel are committed by offenders who live outside these cities, with the numbers of crime-perpetrators dropping steadily as distances between the places of criminal residences and the central city increase. However, the situation is different for localities in which offenders reside. In many cases, property offenders travel considerable distances to their targets, showing no monotonic distance decay in their journey-to-crime patterns. The explanation proposed is that interurban income disparities, and not only travel distances, influence journey-to-crime areas, thus suggesting that the spatial unevenness of urban development (i.e., geographic proximity of affluent and poor towns) may spur property crime rates.      

The UK mortgage market: responding to volatility

The UK housing finance system is still recovering from the credit and financial crisis of 2007–2008. Some features of the system have made it particularly vulnerable to this crisis, notably the extent to which lenders have been reliant on the money markets and securitisation to enable them to lend and the generosity of loan conditions during the boom period, especially after 2005. Other features have helped the system to weather the crisis—notably the relatively low rate of transactions and the prevalence of variable rate and tracker mortgages, which meant that many existing borrowers saw their interest payments fall. At the same time the prime objective of the mortgage market—supporting sustainable owner-occupation—has been undermined as first-time buyers have found it more and more difficult to obtain mortgage funding. The objective of this paper is to assess the robustness of the UK housing finance system not only in the context of the current crisis but also in comparison with earlier crises. We discuss the fundamental issues of volatility and longer-term house price developments both before and after liberalisation. To address these issues the paper first looks at the history of housing market volatility, then at the details of the period since 2007 and finally at future prospects.     

How housing killed the Celtic tiger: anatomy and consequences of Ireland’s housing boom and bust

Between 1996 and 2006, Ireland experienced unprecedented house price inflation, driven by a fourfold increase in the volume of outstanding private mortgage debt and accompanied by a radical growth in housing output. This article outlines the most significant features of the housing boom and explains how it generated and disguised crucial risks in the macro economy and public finances, among mortgage lenders and in the finances of individual households. This is followed by an outline of the key features of the unwinding of the boom since and of its implications for the Irish economy, mortgage lenders and households. The conclusions examine the lessons regarding appropriate regulatory and policy responses to a house price boom which arise from the Irish experience.     

WRITING THE RULES TO RANK THE CANDIDATES: EXAMINING THE IMPACT OF INSTANT‐RUNOFF VOTING ON RACIAL GROUP TURNOUT IN SAN FRANCISCO MAYORAL ELECTIONS

Instant‐runoff voting (IRV)—a relatively new electoral reform adopted in several cities in the United States—gives voters the option to rank‐order more than one candidate preference for each office. When no candidate initially obtains a majority of first choice votes, rank‐ordered preferences are used to “instantly” calculate a winner without requiring a separate runoff election. The impact of IRV on racial group voter turnout in urban elections has not previously been subject to rigorous analysis. Based on racial group interest theory, I argue that the complexity of IRV increases information costs and obscures racial group interests for voters. Analysis of precinct‐level racial group voter turnout rates in five San Francisco mayoral elections from 1995 to 2011 reveals a significant relationship between IRV and decreased turnout among Black and White voters. IRV exacerbates turnout disparities related to age and education in the population, but decreases the effect of income. The relationship between turnout and racial diversity is diminished among some groups.     

The Flexible Mortgage: A Risk Reducing Product?

This paper focuses on lender perceptions of and reactions to increasing risk in the mortgage market, in particular the tension between labour market changes and the provision of mortgage finance. It examines lenders' attitudes towards the 'flexible mortgage' as a potential mechanism for alleviating this tension and managing borrower risk. The paper is based on a qualitative analysis of interviews undertaken by the author with key personnel in 18 mortgage lending institutions. It suggests that, generally, lenders do not perceive 'flexible mortgages' as a solution to the problem, and in many cases do not even recognise that there is a problem. The flexible mortgage is rather seen as a marketing tool for lenders, or a financial service for the financially secure and astute borrower. Furthermore, flexible mortgages could actually be seen as a risk-compounding rather than reducing product in many circumstances.     

Life style and home environment are associated with racial disparities of asthma and allergy in Northeast Texas children

A high prevalence and racial disparities in asthma and allergy have been observed in American children. This study aimed to identify risk factors for asthma and allergy among children, and their contribution to racial disparities in allergy prevalence. A population-based cross-sectional study was carried out among children aged 1-8 years in Northeast Texas 2008-2009. The health conditions, life style and home environment of 3766 children were surveyed by parental questionnaires through e.g. daycares, elementary school, and medical clinics. Among participants who indicated their ethnicity, 255 were Mexican-Americans, 178 Afro-Americans and 969 Caucasians. Afro-American children had a significantly higher prevalence of asthma and eczema. Caucasian had the highest prevalence of rhinitis. Compared to Mexican-American children, Afro-American and Caucasian children were breast fed shorter time, more often went to day care center, had pets and environmental tobacco smoke exposure at home more often. For all children, being at a day care center, being exposed to dampness and environmental tobacco smoke at home were strong risk factors for asthma and allergy. Central air conditioning system was associated with an increased prevalence of wheeze among Mexican-American children, while pets were associated with an increased risk of rhinitis among Afro-American and Caucasian children. Caucasian children were generally not healthier than relatively poor Mexican-American children. Differences in the prevalence of asthma and allergy between races cannot be explained by socioeconomic status only. Life style and home environmental exposures are important risk factors for asthma and allergy in Northeast Texas children.     

Home ownership in recession

Since 1989, the home ownership sector in Britain has experienced a number of changes which would have been dismissed in advance as unlikely. Falling levels of transactions, falling house prices and falling new construction have been accompanied by rising mortgage arrears, rising repossessions and the emergence of home owners with negative equity. The impact of these changes on the wider economy has also contributed to a reassessment of home ownership. This paper outlines the key changes which have affected the home ownership sector in Britain and considers whether these changes are affecting attitudes to home ownership and state intervention to sustain the tenure. It also argues that the changes have been of sufficient duration to be regarded as more than a short‐term ‘blip’ and demonstrate the need to review some accounts of the tenure.     

From the Subprime to the Exotic: Excessive Mortgage Market Risk and Foreclosures

Problem: The recent rapid growth of high-risk mortgage lending raised the financial risk profile facing not only the American homeowner but entire neighborhoods. From the perspective of planners, the problem of increased and geographically concentrated foreclosures is the most critical outcome that has resulted from high-risk mortgage markets.

Purpose: This article analyzes recent trends in mortgage finance in order to recommend what local planners can do to reduce the negative consequences of high-risk home lending for their own communities.

Methods: I plot public and private data, much of it readily available for little or no cost, to discover where in the nation recent mortgage foreclosures are concentrated, and describe how similar analysis could be used prospectively and at a local scale to anticipate future problems.

Results and conclusions: Numbers of subprime, exotic, and zero-down-payment mortgages have all been growing. Where they are spatially concentrated they are linked to rising and geographically concentrated home mortgage foreclosures. I find evidence that subprime lenders achieve greater market penetration in metropolitan areas with less educated residents, and that higher-risk lending is more prevalent where housing prices are high and increasing. I also find that when local housing markets are hot, even high levels of subprime lending are associated with only slightly higher foreclosure filing rates, but foreclosure rates rise quickly when hot markets cool.

Takeaway for practice: Although foreclosures are less likely to be a severe problem in very strong real estate markets, when prices in previously hot markets stagnate or decline, foreclosures can quickly follow. This is a serious concern given recent trends in mortgage financing that have extended credit to more economically vulnerable populations and generally weakening housing markets in many metropolitan areas. These foreclosures tend also to be spatially concentrated within metropolitan areas, particularly stressing housing markets in neighborhoods where the higher-risk products are more prevalent. I recommend that planners: (1) track local lending and foreclosure patterns; (2) promote healthier mortgage markets in vulnerable areas; (3) fund targeted foreclosure prevention and counseling; (4) develop refinancing/restructuring programs; (5) redesign programs to promote sustainable homeownership; (6) get foreclosed properties reoccupied quickly; (7) recognize the effect of foreclosure surges on rental housing markets; and (8) be proactive in policy debates on lending regulation and foreclosure processes.

Research support: None.