Thy Neighbor's Mortgage: Does Living in a Subprime Neighborhood Impact Your Probability of Default?
31 Pages Posted: 21 Apr 2010
Date Written: April 21, 2010
Abstract
This paper focuses on the potential externalities associated with subprime mortgage origination activity. Specifically, we examine whether negative spillover effects from subprime mortgage originations result in higher default rates in the surrounding area. Our empirical analysis controls for loan characteristics, house price changes, and alternative loan products. Our results indicate that after controlling for these characteristics, the concentration of subprime lending in a neighborhood does not lead to greater default risks for surrounding borrowers. However, we do find that more aggressive mortgage products (such as hybrid-ARMs and low/no documentation loans) had significant negative spillovers on other borrowers. Stated differently, the aggressive alternative mortgage designs were more toxic to the housing and mortgage market than previously believed.
Keywords: Subprime mortgages, default, house price appreciation, Externalities
JEL Classification: D1, G2, R1, R2
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By John Y. Campbell, Stefano Giglio, ...
-
Spillover Effects of Foreclosures on Neighborhood Property Values
By Zhenguo (len) Lin, Eric Rosenblatt, ...
-
The Contagion Effect of Foreclosed Properties
By John P. Harding, Eric Rosenblatt, ...
-
The Foreclosure-House Price Nexus: A Panel VAR Model for U.S. States, 1981-2009
By Charles W. Calomiris, Stanley D. Longhofer, ...
-
The Foreclosure-House Price Nexus: Lessons from the 2007-2008 Housing Turmoil
By Charles W. Calomiris, Stanley D. Longhofer, ...
-
Foreclosures, House Prices, and the Real Economy
By Atif R. Mian, Amir Sufi, ...
-
Neighborhood Effects of Concentrated Mortgage Foreclosures
By Jenny Schuetz, Vicki Been, ...
-
Risk and Return in the U.S. Housing Market: A Cross-Sectional Asset Pricing Approach
By Susanne E. Cannon, Norman G. Miller, ...