Racial Dynamics of Subprime Mortgage Lending at the Peak

Research output: Contribution to journalArticle

Abstract

Subprime mortgage lending in the early 2000s was a leading cause of the Great Recession. From 2003 to 2006, subprime loans jumped from 7.6% of the mortgage market to 20.1%, with black and Latino borrowers receiving a disproportionate share. This article leveraged the Home Mortgage Disclosure Act data and multinomial regression to model home-purchase mortgage lending in 2006, the peak of the housing boom. The findings expose a complicated story of race and income. Consistent with previous research, blacks and Latinos were more likely and Asians less likely to receive subprime loans than whites were. Income was positively associated with receipt of subprime loans for minorities, whereas the opposite was true for whites. When expensive (jumbo) loans were excluded from the sample, regressions found an even stronger, positive association between income and subprime likelihood for minorities, supporting the theory that wealthier minorities were targeted for subprime loans when they could have qualified for prime loans. This finding also provides another example of an aspect of American life in which minorities are unable to leverage higher class position in the same way as whites are. Contrary to previous research, model estimates did not find that borrowers paid a penalty (in increased likelihood of subprime outcome) for buying homes in minority communities.

Original languageEnglish (US)
Pages (from-to)328-349
Number of pages22
JournalHousing Policy Debate
Volume23
Issue number2
DOIs
StatePublished - Apr 2013

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mortgage lending
lending
loan
minority
income
class position
regression
recession
purchase
penalty
housing
act
market
cause

Keywords

  • homeownership
  • minorities
  • mortgages
  • predatory lending
  • segregation

ASJC Scopus subject areas

  • Development
  • Urban Studies
  • Management, Monitoring, Policy and Law

Cite this

Racial Dynamics of Subprime Mortgage Lending at the Peak. / Faber, Jacob W.

In: Housing Policy Debate, Vol. 23, No. 2, 04.2013, p. 328-349.

Research output: Contribution to journalArticle

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