Rethinking the Role of Racial Segregation in the American Foreclosure Crisis

Abstract

"Racial segregation is an important factor in understanding the foreclosure crisis, but must be understood to operate in particular and specific ways. The primary, positive impact of segregation on foreclosure risk operates prior to loan origination through the differential access to loan quality by race. Afterward, the impact of segregation is negative. Drawing on a rare dataset of loans that combine loan performance and borrower characteristics, I use a competing risks proportional hazard model to examine the impact of race and racial segregation on risk of foreclosure among borrowers. Results indicate that Black segregation has a large, negative impact on foreclosure risk. Instead, the strongest positive contributor to foreclosure is the negative value of the home relative to the balance of the loan (i.e., “underwater,” as measured by the put option), which is also the mechanism that explains most of the difference in the foreclosure rate by race. The negative impact of racial segregation on foreclosure risk is the result of a mismatch between cities with high levels of segregation and cities with large declines in home prices and related foreclosures." (Author's abstract, IAB-Doku, © Wiley) ((en))

Cite article

Latner, J. (2017): Rethinking the Role of Racial Segregation in the American Foreclosure Crisis. In: City & Community, Vol. 16, No. 4, p. 447-485. DOI:10.1111/cico.12253