Measuring mortgage deficiency and its determinants

This paper examines alternative measures of mortgage deficiency, and suggests that an acceptable index should take account of variations in effective demand among neighborhoods. The proposed index includes income (or, if unavailable, house value), number of households and owner occupancy rates as its main components, and these variables are shown to be significant determinants of inter-census-tract variations in dollars loaned in Los Angeles. When the mortgage deficiency index incorporates variations in effective demand, race has no influence on mortgage deficiency. However, visual measures of neighborhood and dwelling quality remain important determinants of mortgage lending.This paper is based on a research study undertaken for the State of California Department of Savings and Loan. The Department is thanked for research support, but has no responsibility for the conclusions which represent the view of the authors alone. The authors are also grateful to James A. Rabe and Karen Weinstein for research assistance.     

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.     

PLACE‐BASED AND RACE‐BASED EXCLUSION FROM MORTGAGE LOANS: EVIDENCE FROM THREE CITIES IN THE NETHERLANDS

ABSTRACT: Do place and race matter in mortgage loan applications? This article presents evidence from mortgage markets in the Dutch cities of Arnhem, The Hague, and Rotterdam, suggesting that place, and to a lesser extent also race, do matter. In general, race and place are not factors of direct exclusion, but (1) zip codes are included in credit scoring systems, and (2) both place and race are significant factors in the assessments by loan officers because applicants who do not meet all formal criteria are more often accepted (“overrides”) for indigenous Dutch and low‐risk neighborhoods than for ethnic minorities and high‐risk neighborhoods. In addition, a “national mortgage guarantee” is compulsory for loan applications in high‐risk neighborhoods and thereby used as a substitute for redlining, comparable to the compulsoriness of private mortgage insurance in the United States. Some lenders also engage in direct redlining by rejecting low‐risk “national mortgage guarantee” loans in high‐risk neighborhoods, a practice potentially explained by transaction cost economizing. Since the high‐risk neighborhoods in all three cities accommodate relatively large shares of ethnic minority groups, they are hit twice: through place‐based and through race‐based exclusion. In other words, place‐based disparate treatment results in race‐based disparate impact. The neighborhood does matter; place‐based exclusion in the mortgage market has a neighborhood effect.     

CRA'S “BLIND SPOTS”: COMMUNITY REINVESTMENT AND CONCENTRATED SUBPRIME LENDING IN DETROIT

ABSTRACT: As the mortgage crisis took shape by 2007, the Community Reinvestment Act of 1977 emerged at the center of a debate over whether community reinvestment regulations were perverse incentives promoting high‐risk lending, or whether those regulations had become outmoded in the face of concentrated subprime lending. This paper weighs those arguments by examining the market behavior of lenders subjected to Community Reinvestment Act (CRA) as the subprime lending boom took shape after 2004. Using Detroit as an illustrative case, it empirically examines the market structure of high‐cost lending, as well as the role played by CRA‐covered lenders in the critical market segments most prone to concentrated subprime lending. The results suggest that several “blind spots” in CRA regulations weakened the Act's ability to counter the firm‐ and neighborhood‐level segmentation that characterized the growth of concentrated subprime lending in Detroit during the peak years of the housing boom.     

BANK LENDING TO MINORITY AND LOW-INCOME HOUSEHOLDS AND NEIGHBORHOODS: Do Community Reinvestment Agreements Make A Difference?

ABSTRACT: This article marks a new direction in research on the Community Development Act (CRA) by examining the outcomes of CRA agreements, comparing the mortgage and home improvement lending of banks with and without agreements. The analysis examines Home Mortgage Disclosure Act data for all the states and metropolitan areas with CRA agreements in effect and compares mortgage and lending to low-income and minority households and neighborhoods by banks with and without agreements and by banks with different types of agreements. Banks with CRA agreements appear to be more responsive than other banks to the credit needs of minority and low-income households and neighborhoods, especially when independent mortgage banks, which are not subject to the CRA, are removed from the analysis. Few significant differences, however, were found in the lending practices of banks with different types of agreements, including banks with negotiated and voluntary agreements.     

RACIAL,ECONOMIC, AND INSTITUTIONAL DIFFERENCES IN HOME MORTGAGE LOANS: St. Joseph County,Indiana

ABSTRACT: Numerous studies have documented racial and economic disparities in the home mortgage market. Almost all of these have been done in large urban areas, many of which have long histories of racial conflict and discrimination. Further, little attention has been paid to institutional disparities, i.e., the ways in which mortgage lenders differ among themselves in their community reinvestment performance. In this study, we profile the home mortgage lending of several institutions doing business in the medium-sized urban area of St. Joseph County, Indiana. We find tremendous differences between lenders, suggesting that bank practices and policies exert a great impact on how well low income and minority neighborhoods and individuals are served. Lender characteristics, such as the legal structure of the institution (e.g., commercial bank, credit union, savings and loan), branch locations, and other factors are associated with these disparities. We conclude by suggesting that several heretofore ignored variables need closer examination.     

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.     

Analyzing intra-metropolitan poverty differentiation: causes and consequences of poverty expansion to suburbs in the metropolitan Atlanta region

Although metropolitan areas have traditionally been viewed as dichotomous structures with a central city and surrounding suburbs, the development patterns of such areas have taken on a multi-ring sectoral and polycentric structure in the context of intra-metropolitan spatial differentiation. Using the longitudinal census database (1970–2000) for the Atlanta metropolitan region, this study showed not only substantial increases in poverty and its concentration in suburban areas such as inner- and middle-ring suburbs and some suburban employment centers, but also causal factors for changes in poverty by race and subarea. The results suggest that unemployment and rental housing burden were the strongest determinants of levels of poverty and its change across race and subareas, indicating the importance of jobs and affordable rental housing to alleviating poverty and its concentration.     

The Impact of Single-family Mortgage Foreclosures on Neighborhood Crime

Foreclosures of single-family mortgages have increased dramatically in many parts of the US in recent years. Much of this has been tied to the rise of higher-risk subprime mortgage lending. Debates concerning mortgage regulation, as well as around other residential finance policies and practices, hinge critically on the social as well as personal costs of loan default and foreclosure. This paper examines the impact of foreclosures of single-family mortgages on levels of violent and property crime at the neighborhood level. Using data on foreclosures, neighborhood characteristics, and crime, the study found that higher foreclosure levels do contribute to higher levels of violent crime. The results for property crime are not statistically significant. A standard deviation increase in the foreclosure rate (about 2.8 foreclosures for every 100 owner-occupied properties in one year) corresponds to an increase in neighborhood violent crime of approximately 6.7 per cent. The policy implications of these findings are discussed.     

Comment: Public Housing Demolition and the Benefits to Low-Income Families

Surveys of recent movers in twenty-seven large metropolitan areas indicate that neighborhood characteristics, school quality, and commuting-related reasons precipitate only a small fraction of all moves, including moves out from a city to its suburbs. Many moves occurring within metropolitan areas in the 1970s are for reasons that are insensitive to feasible policy action. The findings imply that public programs designed to alter the destination choice of movers will prove more fruitful than attempts to alter the rate at which people move.     

The spatial dynamics of neighborhood change: exploring spatial dependence in neighborhood housing value change

This study examined spatial dependence in neighborhood change between 1990 and 2010 in the largest 100 metropolitan areas in the U.S. By analyzing neighborhood housing value change, this study found that there is considerable spatial autocorrelation in neighborhood change. Neighborhoods form spatial clusters in neighborhood housing value and its change. The spatial analysis also showed that there was a persistent spatial inequality between the city and suburbs but that this spatial inequality has declined over time. Finally, this study suggests that coordinating community development efforts with surrounding neighborhoods rather than taking isolated actions can result in more successful outcomes.     

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.     

Policy changes affecting housing and mortgage markets: how governments in the UK and the Netherlands responded to the GFC

Governments across the world have faced a difficult balancing act in reacting to the GFC: housing markets and in particular new construction have slumped and mortgage lending is down, calling for measures to stimulate output. But the crisis was brought about in part by the proliferation of new mortgage products and lax lending standards from the 1990s onwards—calling for tighter regulation. This paper examines the cases of the UK and the Netherlands. Both countries have high levels of mortgage debt to GDP and well-developed mortgage markets, but the important institutional differences between them, and the fact that their housing-policy developments often serve as models for other countries, make a comparison worthwhile. The paper takes a system-embedded approach to describing the housing and mortgage markets, and the governments’ post-GFC responses. The countries enacted similar short-term stimulus measures for the housing market but have adopted stricter long-term regulations for the mortgage market, which replace the assumption of rational consumer behaviour with the principles of behavioural economics. The institutional frameworks condition the effects of such measures, so outcomes will differ, but tighter regulation of mortgage markets can be expected to reduce demand for owner-occupied housing.     

Neighborhood Evaluations by City and Suburban Children

A consistent finding in research on housing choice and residential satisfaction has been the preference of parents for suburbs as child-rearing environments. Children themselves though, have rarely been asked about different types of neighborhoods as places to live. The present study is an attempt to address this gap. This article discusses some reasons for the paucity of child-oriented research and develops from the literature a picture of children's own perceptions of city and suburban neighborhoods. The results of an empirical study are then reported. A comparison of the neighborhood evaluations of 148 city and suburban teenagers suggests that both city and suburban children recognize positive as well as negative aspects of their neighborhoods; however, city and suburban neighborhoods do appear to differ in the particular characteristics that are viewed as being positive or negative. Furthermore, using detailed information on each of the individual home environments, differences in children's neighborhood evaluations are found to correspond with measured differences in specific neighborhood features such as child density, number of recreational opportunities, and presence of other selected land uses. Implications for planning and recommendations for further research are discussed.     

STATE ANTIPREDATORY LENDING LAWS AND NEIGHBORHOOD FORECLOSURE RATES

ABSTRACT: In this study, we examine the impact of state antipredatory lending laws (APLs) on neighborhood foreclosure and delinquency rates using a set of panel data regression models. We find strong evidence that neighborhoods have lower default rates in states with laws that extended federal coverage and/or restricted more mortgage contract terms, in states with broader coverage of subprime loans with high points and fees, and in states with more restrictive regulations on prepayment penalties. A typical APL lowers neighborhood default rates by between 3.8% and 18%, depending on the default risk measure considered. The findings remain consistent when we restrict the analysis to cross‐border neighborhoods, suggesting that they are not due solely to unobservable market variation.     

Neighborhood Affordability and Housing Market Resilience

Problem, research strategy, and findings: Although many researchers have examined factors associated with vulnerability to foreclosure, few have investigated the role neighborhood affordability plays in foreclosures in metropolitan areas. In this study, we examine the effects of location affordability (i.e., housing and transportation affordability combined) on resilience to foreclosure in more than 300?U.S. metropolitan areas during the U.S. housing recovery period. Using hierarchical linear regression with changes in zip code–level home foreclosure rates, our findings suggest the relationship between affordability and foreclosure resilience varies according to urban form (central/high-density city versus suburban low-density area) and types of metropolitan housing markets (boom–bust versus strong versus weak). In the national analysis, where location affordability was high, home foreclosure rates dropped substantially in central/high-density areas but not in suburban low-density areas. When we disaggregated the zip codes according to the market type, location affordability contributed to recovery in central cities in strong and weak metros and in the suburbs of boom–bust metros. There was no positive association in the suburbs of strong and weak metros. With improved data, future studies could measure an association between affordability and lower income renter households.

Takeaway for practice: Our study of the affordability crisis that followed the foreclosure crisis shows that planners can foster resilient and affordable housing markets by expanding and densifying affordable neighborhood locations and considering interactions between the costs of housing and transportation. Planners can improve neighborhood affordability with local and regional strategies based on the local residential density and the type of metropolitan housing market.     

HAS EXURBAN GROWTH ENABLED GREATER RACIAL EQUITY IN NEIGHBORHOOD QUALITY? EVIDENCE FROM THE LOS ANGELES REGION

ABSTRACT: A wealth of data drawn from cities and their nearby suburbs show that, consistent with place stratification theory, African Americans live in poorer quality communities than similarly affluent members of other racial groups. Yet, few have examined whether these trends are playing out in the rapidly growing exurbs, places that emerged in the post‐Civil Rights era. Through a case study of African American migration to Los Angeles's exurban Inland Empire, this article tests the applicability of place stratification theory by triangulating evidence from interviews with 70 movers with U.S. Census and American Community Survey data. Both sources reveal that the gap in neighborhood conditions among similar income racial groups is much narrower in the exurbs than inner city Los Angeles or its nearby suburbs, an outcome that participants attributed to the region's rapid housing construction, relative lack of a history of who lives where, and resulting neighborhood diversity.     

What types of neighbourhoods are redlined?

This paper presents a case study of lending behaviour in the city of Rotterdam, the Netherlands. It shows what types of neighbourhoods are redlined by analyzing redlining data of the two largest suppliers of mortgage loans and comparing it to social-demographic and housing market data at the neighbourhood level. Although this approach cannot explain redlining, it can show which factors are related to lending behaviour. Low income, unemployment and ethnicity are strongly positively correlated to redlining. A discriminant analysis shows that the interaction between low income, unemployment or ethnicity on the one hand, and the average value of sold units on the other hand can best approximate redlining. Lastly, this paper also highlights the importance of scale. Manuel B. Aalbers formerly at: Amsterdam institute for Metropolitan and International Development Studies (AMIDSt), University of Amsterdam, Nieuwe Prinsengracht 130, 1018 VZ Amsterdam, The Netherlands     

A Changing Electorate in a Majority Black City: The Emergence of a Neo‐Conservative Black Urban Regime in Contemporary Atlanta

In Atlanta, Georgia, many middle‐class blacks are migrating from the city to the suburbs. Simultaneously, middle‐class whites are moving into the city. These contrasting migrations contribute to a reduction in the voting power of black Atlantans, while increasing that of white Atlantans. One outcome predicted in the literature is the establishment of a progressive urban regime; another outcome suggested is the continuation of a black urban regime. The former emphasizes populist policies, while the latter promotes pro‐growth programs in a majority black city. This study seeks to determine the most appropriate explanation. Using a longitudinal opinion survey of Atlanta neighborhood leaders and secondary data, it was determined that a modified black regime identified as a neo‐conservative black regime exists. This governance supports conservative pro‐growth policies. A similar urban regime is predicted to emerge in several majority‐black cities.     

SUBURBANIZATION IN THE SEVENTIES: The “Push-Pull” Hypothesis Revisited

ABSTRACT: This article compares the effects of “push” and “pull” factors on decisions of white and black households without children to move from central cities to the suburbs. Unlike previous studies where the independent and dependent variables are aggregate characteristics of the metropolitan areas or individual suburbs, in this article the units are individual households and the variables characteristics of these households or the metropolitan area where they live. The data suggest that black and white decisions are affected by the same variables in the same way, and that blacks and whites are equally likely to move to the suburbs. We also find that both groups tend to move away from the central cities of metropolitan areas with large black populations and in which housing is relatively concentrated in the suburbs, consistent with both the “push” and “pull” hypotheses. However, neither racial group was apparently influenced by job suburbanization or central city crime rates, which is inconsistent with these hypotheses.