Racial Dynamics of Subprime Mortgage Lending at the Peak

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.     

Evidence and Actions on Mortgage Market Disparities: Research,Fair Lending Enforcement,and Consumer Protection

ABSTRACT

In this article, we present an overview of the research on discrimination in mortgage underwriting and pricing, the experiences of minority borrowers both prior to and during the financial crisis, and federal efforts to mitigate foreclosures during the crisis. We next discuss the history of legal cases alleging disparate treatment of minority borrowers, and recent cases alleging disparate impact in the wake of the Supreme Court’s Inclusive Communities decision. Using these discussions as a background, we examine and discuss mortgage regulations issued by the Consumer Finance Protection Bureau following the financial crisis, describe recent developments in the FinTech industry and explore the implications for fair lending policy and minority borrowers more generally. Finally, we draw conclusions and make recommendations for improving the mortgage market outcomes of minority borrowers and increasing minority borrowers’ access to credit.     

Residential Segregation,Housing Submarkets,and Spatial Analysis: St. Louis and Cincinnati as a Case Study

This article considers how spatial analysis of housing submarkets can advance research into residential segregation. While an emphasis on housing submarkets has been proposed as a new construct for modeling housing prices, its use in analyzing residential segregation has been limited. Recent advances in spatial analysis and geographic information systems present new opportunities for researchers to exploit the potential of housing submarkets as constructs that offer a more precise way to examine residential segregation. The article synthesizes literature related to residential segregation and housing submarkets and demonstrates how to delineate housing submarkets using publicly available data. It examines the spatial distribution of housing submarkets and how the socially disadvantaged are represented across housing submarkets in St. Louis, Missouri, and Cincinnati, Ohio, to conclude that St. Louis's housing market is more polarized and racially segregated than Cincinnati's. Spatial analysis of housing submarkets, in conjunction with archival analysis, provides a promising avenue for identifying residential segregation as a multidimensional phenomenon, and a means to explore local processes of urban inequality.     

Do Small Area Fair Market Rents Reduce Racial Disparities in the Voucher Program?

ABSTRACT

A lawsuit that argued that the method used to calculate rent limits in the Housing Choice Voucher Program promoted racial segregation in Dallas, Texas, resulted in the U.S. Department of Housing and Urban Development developing zip code-based voucher rent limits in Dallas in 2011. This rent calculation approach was then expanded to five other demonstration sites in 2012. This article analyzes whether adjusting voucher rent limits reduces a minority household’s likelihood of living in a high-minority neighborhood, improves their likelihood of living in a higher opportunity neighborhood, and reduces the disparity in location outcomes between minority and White households in the voucher program. This article finds evidence of improvements in the location outcomes of Black and Hispanic voucher households because of the use of zip code-based rent limits, but that these results are only marginal with respect to the persistent disparities in outcomes based on race within the voucher program.     

Spatializing the future: financial expectations,EU convergence and the Eastern European Forex mortgage crisis

Existing accounts of failure to predict the financial crisis focus on the complexity of the financial system, and are less useful for understanding crises in non-securitized markets. We examine the roots of optimism leading up to the Eastern European mortgage crisis through the case of Hungary, and use recent theories of expectations, which understand them as both pragmatic and fictional practices that commonly incorporate narratives. Based on archival research and interviews with bankers, regulators and legislators, we demonstrate how the EU convergence narrative was central in forming optimistic expectations. Fusing the underspecified convergence process with an orientalist geographical imaginary, this narrative and its associated measures translated growing indebtedness as ‘catching up’ with Europe, de-emphasized exchange rate risk through a belief in European convergence and precluded crisis scenarios originating in the European Union. Our findings contribute to theories of how economic expectations are formed, stabilized and maintained by developing the concept of ‘spatializing the future’, denoting practices that handle uncertainty by charting the future as movement in concrete geographical or abstract space, along externally verifiable pathways.     

The young and the restless: housing access in the critical years

Abstract

How do governmental housing policies affect the ability of young people to exit the parental home? This paper makes three claims. First and most important, governments that create accessible and liquid mortgage markets make it easier for young people to launch from the parental home. Second, even in those countries with more liquid housing markets, younger generations today still have an increasingly difficult time realising their preferences compared to prior generations. Third, increasing income and wealth inequality interacts with housing markets to create this uneven playing field both within and across generations. This paper examines these relationships in 20 high-income OECD countries. Fewer adult children live in the parental home in countries with deep mortgage markets, high levels of social rented housing, tax relief for ownership, low buyers' transaction costs and high residential mobility. These countries cut across the traditional housing regime typologies, highlighting the need for additional housing-specific theory building.     

Urban Pressures and Innovations: Sustainability Commitment in the Face of Fragmentation and Inequality

Local government innovations occur within environments characterized by high service‐need complexity and risk. The question of how broader environmental conditions influence governmental willingness or ability to innovate has been a long‐standing concern within organizational, management, and policy scholarship. Although wealth and education are robust predictors of the propensity to engage in a wide range of local sustainability activities, the linkages among governmental fragmentation, social inequality, and sustainability policies are not well understood. This study focuses on the conditions both within and across city boundaries in urban regions which inhibit adoption of sustainable development innovations. We utilize a Bayesian item response theory approach to create a new scale measuring sustainability commitment by local governments in the United States. The analysis finds service‐need complexity and capacity within local governments' organizational task environments have nonlinear influences on innovation in terms of both green building and social inclusion policy tools.     

A General Pricing Model for a Mortgage Insurance Contract Considering the Effects of Multivariate Random Variables on Termination Probabilities and Loss Rate

This article describes the derivation of a general closed-form formula for determining a fair premium for both Federal Housing Administration (FHA) and private mortgage insurance (MI). Our model incorporates the regulations appearing in MI contracts, the changes in economic situations, the termination hazard rates (i.e., prepayment and default), and the loss rate given default. We then give an example to show how one uses our model to calculate an MI premium with FHA regulations by using real mortgage data. Our pricing formula can also be used to calculate the implied default hazard rates given the FHA's current MI. The comparison of this implied rate with the actual rate should help mortgage insurers decide whether the current MI premium should be adjusted. Further analysis shows how sensitive MI premiums are to changes in the model parameters, such as the volatility of the interest rate and the house price appreciation rate. Our pricing formula should make it easier for mortgage insurers to determine fair MI premiums and employ sophisticated risk-management procedures.     

Inequality,marketisation and the left: Schools policy in England and Sweden

It is argued in this article that the marketisation of schools policy has a tendency to produce twin effects: an increase in educational inequality, and an increase in general satisfaction with the schooling system. However, the effect on educational inequality is very much stronger where prevailing societal inequality is higher. The result is that cross‐party political agreement on the desirability of such reforms is much more likely where societal inequality is lower (as the inequality effects are also lower). Counterintuitively, then, countries that are more egalitarian – and so typically thought of as being more left‐wing – will have a higher likelihood of adopting marketisation than more unequal countries. Evidence is drawn from a paired comparison of English and Swedish schools policies from the 1980s to the present. Both the policy history and elite interviews lend considerable support for the theory in terms of both outcomes and mechanisms.     

Heterogeneity in Income: Effects of Racial Concentration on Foreclosures in Los Angeles,California

ABSTRACT

The United States continues to be defined by racial concentration, where most racial/ethnic groups live apart from each other. For homeownership, neighborhoods with large proportions of racial minorities are often linked to negative outcomes for minority homeowners; this was particularly the case during the Great Recession. However, middle and upper income ethnic neighborhoods, or resurgent neighborhoods, have grown in numbers because of a concentration of immigrants, federal policies favoring professionals, ethnic-specific resources, and affluence. In 2007, about 37% of Los Angeles, California, Latino tracts were resurgent and 53% of Asian tracts were resurgent. This study finds that homeowners in resurgent neighborhoods had lower default/foreclosure rates and predicted probabilities than those in low-income neighborhoods. Asian resurgent neighborhoods had the lowest predicted probabilities of default or foreclosure, followed by Latino resurgent and White middle-class neighborhoods. There were also discrepancies among Asian neighborhoods based on nativity. Consequently, it is important to recognize that minority neighborhoods are heterogeneous, with differing impacts on homeownership opportunities when examined by class.     

A Poverty of Imagination: Blaming the Poor for Inequality

Inequality in Britain today is now so deep that the top 10 per cent own 100 times more than the bottom 10 per cent, yet there is remarkably little public concern or anger about poverty. Indeed, compassion and concern for the poorest in society has actually declined in recent years due to the continued, and even increased, prevalence of the view that poverty is largely caused by laziness and lack of willpower, or is simply an unavoidable fact of modern life. Either way, many people tacitly accept that ‘the poor will always be with us’. Moreover, much of the British public believes that there are sufficient opportunities to succeed for those who try hard enough, and also that it is the middle class which actually struggles the most, economically or financially. These assumptions are highly conservative in their ideological and political implications because they limit public support for egalitarianism and extensive wealth redistribution from rich to poor.     

Equality as a driver of inequality? Universalistic welfare,generalised creditworthiness and financialised housing markets

Abstract

Scandinavian countries are known for their universalistic welfare states, corporatist coordination, strong economic performances and egalitarian outcomes, an institutional combination often referred to as the ‘Nordic model’. However, these countries also possess volatile and increasingly vulnerable housing markets characterised by periods of sharp increases in prices and rents and some of the highest debt to income ratios in the world. The combination of a universalistic welfare state and housing market dynamics sets off a self-reinforcing process of increased stratification and re-familialisation. How did these orderly, egalitarian and welfare-oriented societies end up with housing markets that expose their citizens to increasing risk while driving inequality? The key lies in the effect the Nordic welfare state has on financialised housing markets. Successful decommodification of human lives leads to generalised creditworthiness which stimulates asset price inflation and new wealth and risk inequalities.     

“Racial Threat”, Partisan Climate, and Direct Democracy: Contextual Effects in Three California Initiatives

Does context—racial, economic, fiscal, and political—affect whites’ votes on racially-related ballot propositions? We examine non-Hispanic whites’ voting behavior on three California ballot initiatives: Propositions 187, 209, and 227. Unlike previous analyses that lacked individual-level data and were therefore limited to ecological inference, we combine individual-level data from exit polls with county-level contextual variables in a hierarchical linear model. Racial/ethnic context affected whites’ votes only on Proposition 187, economic context had no influence on vote choice, and the effect of fiscal context was limited to Proposition 227. However, across the propositions, whites’ decisions were shaped by their political context. Thus, we do not find support for the “racial threat” hypothesis across all racially-charged issues.     

Thinking with Flint: Racial Liberalism and the Roots of an American Water Tragedy

The lead poisoning of Flint, Michigan’s water is popularly framed as a case of “environmental racism” given that Flint’s population is mostly black and lower income. In this essay I argue that we see the environmental racism that underlies Flint’s water poisoning not as incidental to our political-economic order, nor even as stemming from racist intent, but as inseparable from liberalism, an organizing logic we take for granted in our modern age. I expand on the idea of “racial liberalism” here. While upholding the promise of individual freedoms and equality for all, racial liberalism—particularly as it was translated into urban renewal and property making in mid-20th-century urban America—drove dispossession. In Flint racialized property dispossession has been one major factor underlying the city’s financial duress, abandonment, and poisoned infrastructure. Yet, through austerity discourse, Flint is disciplined as if it were a financially reckless individual while the structural and historical causes of its duress are masked. Tracing the history of property making and taking in Flint and the effects of austerity urbanism on its water infrastructure, my central argument is that our understanding of Flint’s predicament—the disproportionate poisoning of young African-Americans—can be deepened if we read it as a case of racial liberalism’s illiberal legacies.     

Regulatory Contradictions: The Political Determinants of Labor Market Inequality in Korea and Japan

Growing labor market inequality in Korea and Japan is often blamed on increased trade competition with China, the information technology revolution, and aging populations. This study shows that labor market inequality is not simply driven by such structural changes but by the nature of the ways in which new labor market regulations were created and the resulting regulatory contradictions. Although its state-centric strategies designed new labor market regulation favoring marginal workers, the Korean government failed to resolve labor market inequality. This is because the government's new regulatory goal was not backed by sufficient policy resources or adequately coordinated with other policy areas. Conversely, Japanese authorities prioritized the employment stability of regular workers on the basis of consensus among labor and business groups and the government. However, this narrow goal continues to inhibit progress in closing the gap of labor market inequality.     

Varieties of Regulation and Financialization: Comparative Pathways to Top Income Inequality in the OECD, 1975–2005

Abstract

With financialization now acknowledged as one of the most potent threats to income equality, can finance-driven inequality be explained by a singular causal argument? Taking the case of top incomes across the OECD, this paper addresses the standard causal narrative of finance-driven inequality, where rising top income inequality is explained as a function of deregulation, financial sector growth, and a parallel weakening of the role of trade unions and the government. Applying fuzzy-set Qualitative Comparative Analysis (fsQCA) to a time-series dataset (1975–2005), it assesses the ways in which configurations of institutions combined in different ways prior to the recent financial crisis, to create policy contexts conducive to top income growth. It does this by adopting a time-series approach to QCA, involving calibration and analysis of data at three successive historical waves. Results suggest that top incomes in the era of finance-driven capitalism were subject to a diversity of causal paths which generated similar outcomes in different contexts, in a manner which departs substantially from the standard narrative. In doing so, it elaborates on the application of time-series approaches to case-based analysis, and uses its results to discuss the ways in which institutions may combine in different ways to generate similar, or divergent outcomes.     

Placing Racial Stereotypes in Context: Social Desirability and the Politics of Racial Hostility

Past research indicates that diversity at the level of larger geographic units (e.g., counties) is linked to white racial hostility. However, research has not addressed whether diverse local contexts may strengthen or weaken the relationship between racial stereotypes and policy attitudes. In a statewide opinion survey, we find that black‐white racial diversity at the zip‐code level strengthens the connection between racial stereotypes and race‐related policy attitudes among whites. Moreover, this effect is most pronounced among low self‐monitors, individuals who are relatively immune to the effects of egalitarian social norms likely to develop within a racially diverse local area. We find that this racializing effect is most evident for stereotypes (e.g., African Americans are “violent”) that are “relevant” to a given policy (e.g., capital punishment). Our findings lend nuance to research on the political effects of racial attitudes and confirm the racializing political effects of diverse residential settings on white Americans.     

Family Leave Policies and Labor Market Segregation in Germany: Reinvention or Reform of the Male Breadwinner Model?1

abstract The historically dominant male breadwinner and female carer model in West Germany has resulted in comparably low female employment rates and a gender‐structured labor market. Since the 1970s, the decline of traditional patterns and sectors of male employment has been accompanied by the expansion of the female‐dominated service sector. Supplemented by women's higher educational attainment, a pluralism of household forms, and German unification, the result has been constant growth in female employment. With more working mothers, the question of combining work and family has provoked policy responses that, in West Germany, have mainly centered on family leave policies. In addressing the question of whether these policies have resulted in a more equitable sharing of paid and family work, this article presents longitudinal empirical data on the working patterns of women entitled to different forms of family leave. These show how changing regulations have led to the institutionalization of a “baby break” for younger women and to the promotion of labor market exclusion.     

Toward Developing a Structured Approach to the Diagnosis and Resolution of Nonperforming Loans: The Case of China and India1

This article addresses the issue of nonperforming loans (NPLs) from a public policy perspective. The focus is on three aspects of NPLs that we consider essential for a proper analysis: the degree of the NPL problem, the causes of NPLs and the solutions adopted to address an identified NPL issue. This research analyses the diverse definitions and measurements of an NPL. Further, it introduces the distinction between systemic and situational causes of NPLs. Arguing that different causes require different cures, this study emphasizes a mix of short‐term and long‐term remedial measures as judicious in dealing with the NPL problem. This framework is then applied to two case studies: China and India. The conclusion identifies future directions of research, such as the study of a threshold level beyond which NPLs may pose a barrier to a country's growth and productivity.