Working Paper: NBER ID: w19020
Authors: Patrick Bayer; Fernando Ferreira; Stephen L. Ross
Abstract: This paper examines mortgage outcomes for a large, representative sample of individual home purchases and refinances linked to credit scores in seven major US markets in the recent housing boom and bust. Among those with similar credit scores and loan attributes, black and Hispanic homeowners had much higher rates of delinquency and default in the downturn. There is important heterogeneity within minorities: black and Hispanics that live in areas with lower employment rates and that have high debt to income ratios are the driving force behind the observed racial and ethnic differences in foreclosures and delinquencies. Moreover, these estimated differences are especially pronounced for loans originated near the peak of the housing boom even after controlling for the effect of origination timing on households’ equity position. These findings suggest that black and Hispanic homeowners drawn into the market near the peak were especially vulnerable to adverse economic shocks and raise concerns about homeownership as a mechanism for reducing racial disparities in wealth.
Keywords: minority homeowners; housing market; delinquency; foreclosure; credit scores
JEL Codes: J15; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Race (J15) | Delinquency (K42) |
| Neighborhood Conditions (R23) | Delinquency (K42) |
| Debt-to-Income Ratio (G59) | Delinquency (K42) |
| Employment Rates (J68) | Delinquency (K42) |
| Race (J15) | Foreclosure (G33) |
| Economic Conditions (E66) | Vulnerability of Minority Homeowners (G51) |
| Timing of Entry into Market (G14) | Mortgage Performance (G21) |