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Research Seminars & Workshops @ IRES

Professor Gary Painter
University of Southern California

Social Dimension of Subprime Mortgage Default


12 August 2014 (Tue)


3.30pm - 5.00pm


TLIAP Learning Centre 21 Heng Mui Keng Terrace, I3 Building, Level 4


We study the relationship between the social composition of a local area and subprime mortgage defaults and prepayments for loans originated between 2004 and 2006 in six of the principal “gateway” cities in the U.S. Social factors considered include Census tract level measures of the concentration of households by ethnicity and immigration status. We focus on gateway cities due to their size, density and social heterogeneity, and because these locations will allow us to study economic versus social factors that explain systematic variation in default behavior among communities. We find that high CLTV loans in more homogenous Census tracts are more likely to default, and more likely to prepay, as compared to loans in tracts that are less ethnically concentrated. We show that results regarding default at high CLTVs are driven by relatively more homogenous white neighborhoods, however. Loans in tracts with more than 33 percent minorities are systematically less likely to default at high CLTVs. One interpretation of our finding is that borrowers in these neighborhoods are less likely to strategically default. On the other hand, low CLTV loans in black and Hispanic tracts are more likely to enter default, a result that is perhaps indicative of greater liquidity issues. We also find that loans in Census tracts with more recent immigrants are much more likely to default at higher CLTVs.

About the Speaker

Gary Painter is a Professor in the Sol Price School of Public Policy at the University of Southern California. He also serves as the Director of Research at the Lusk Center for Real Estate and Director of Graduate Programs in Public Policy. He has published over 35 articles and numerous other publications in top journals such as the Review of Economics and Statistics, Journal of Urban Economics, Urban Studies, Journal of Human Resources, Journal of Policy Analysis and Management, Real Estate Economics, Journal of Real Estate Finance and Economics, and Regional Science and Urban Economics. Professor Painter’s research interests focuses on housing, urban economics, and education policy. He is among the world’s foremost experts on how changing demographics impact U.S. housing markets. Recent work has focused on how immigrants are integrating into housing markets across the U.S., the role of the economic cycle on household formation, and how older households make housing tenure decisions as they age. Other recent work has studied immigrant integration issues in spatial labor markets and in education. He has served as a consultant for the National Association of Realtors, Pacific Economics Group, Andrew Davidson Co., Fannie Mae, Grant Thorton LLP, Burr Consulting, and the Research Institute for Housing America.

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