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Subprime Lending: Neighborhood Patterns Over Time

Working paper #547
Jonathan Hershaff, Susan M. Wachter and Karl Russo

Subprime lending serves those with relatively high credit risk and therefore entails higher borrowing costs. This market has grown tremendously over the past decade, although with substantial variation in growth rates across the central cities of metropolitan areas in the US. Previous research has focused on specific cities and has shown that subprime lending historically occurs disproportionately in areas with higher risk, lower income and larger shares of minority households. This paper extends the literature by conducting a nation-wide study of how subprime lending patterns have changed over time across all US central cities. We find subprime lending growth is higher in urban census tracts with higher percentages of Hispanic population, lower levels of educational attainment, and, ceteris paribus, higher median family incomes.

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