The Role of Neighborhood Characteristics in Mortgage Default Risk: Evidence from New York City

47 Pages Posted: 28 Jun 2010 Last revised: 10 Oct 2011

See all articles by Sewin Chan

Sewin Chan

New York University (NYU) - Robert F. Wagner Graduate School of Public Service

Michael Gedal

New York University - Robert F. Wagner Graduate School of Public Service

Vicki Been

New York University School of Law

Andrew Haughwout

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: August 2011

Abstract

Using a rich database of non-prime mortgages from New York City, we find that census tract level neighborhood characteristics are important predictors of default behavior, even after controlling for an extensive set of controls for loan and borrower characteristics. First, default rates increase with the rate of foreclosure notices and the number of lender-owned properties (REOs) in the tract. Second, default rates on home purchase mortgages are higher in census tracts with larger shares of black residents, regardless of the borrower’s own race. We explore possible explanations for this second finding and conclude that it likely reflects differential treatment of black neighborhoods by the mortgage industry in ways that are unobserved in our data.

Keywords: mortgage default risk, neighborhoods, New York City

JEL Classification: G2, R1

Suggested Citation

Chan, Sewin and Gedal, Michael and Been, Vicki and Haughwout, Andrew F., The Role of Neighborhood Characteristics in Mortgage Default Risk: Evidence from New York City (August 2011). Available at SSRN: https://ssrn.com/abstract=1631944 or http://dx.doi.org/10.2139/ssrn.1631944

Sewin Chan (Contact Author)

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

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Michael Gedal

New York University - Robert F. Wagner Graduate School of Public Service ( email )

New York, NY 10012
United States

Vicki Been

New York University School of Law ( email )

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Andrew F. Haughwout

Federal Reserve Bank of New York ( email )

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212-720-1844 (Fax)

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