In the article, Professor Ross and his co-authors discuss recent research on the mechanisms behind the neighborhood concentration of crime. They focus on their recent NBER and HCEO working paper, in which they show that social relationships at school play a very important role in mediating neighborhood effects in youth crime.
This paper examines racial and ethnic differences in high cost mortgage lending in seven diverse metropolitan areas from 2004-2007. Even after controlling for credit score and other key risk factors, African-American and Hispanic home buyers are 105 and 78 percent more likely to have high cost mortgages for home purchases.
The increased incidence of high cost mortgages is attributable both to sorting across lenders (60-65 percent) and to differential treatment of equally qualified borrowers by lenders (35-40 percent). The vast majority of the racial and ethnic differences across lenders can be explained by a single measure of the lender’s foreclosure risk, and most of the within-lender differences are concentrated at high-risk lenders.
Thus, differential exposure to high-risk lenders combined with the differential treatment by these lenders explains almost all of the racial and ethnic differences in high cost mortgage borrowing.
The research, with coauthors Dave Deming and Steve Billings, examines youth crime in Charlotte, NC, and finds that having more kids of similar age, gender and race nearby raises the likelihood of arrest, but only if those kids attend the same school. Further, these kids are more likely to be arrested together as criminal partners if they live very nearby and attend the same school.
These effects are largest when these youth have been in the same neighborhood for a longer time and if they attended the same elementary school. These findings suggest that neighborhood spillovers in criminal activity are likely caused by social interactions that arise within schools, and that school level interventions may be effective in mitigating neighborhood level clusters of crime.
Professor Steve Ross’s paper “The Vulnerability of Minority Homeowners in the Housing Boom and Bust” with Patrick Bayer and Fernando Ferreira was the lead article in the February issue of the American Economic Journal: Economic Policy.
In this paper, they find that African-American and Hispanic borrowers have substantially higher delinquency and foreclosure rates during the financial crisis even after controlling for detailed borrower and loan risk factors. These differences are concentrated heavily among homebuyers who purchased their home very near the peak of the market, even after controlling for negative equity associated with the timing of the purchase. For refinance mortgages, they find a similar pattern linked to when the home was purchased, rather than the date of the refinance mortgage.
They argue that the findings are consistent with higher risk borrowers, especially higher risk minority borrowers, being drawn into the market during the housing market expansion.
Professor Ross gave the opening address at the Dallas Federal Reserve conference on “Intent vs. Impact: Evaluating Individual- and Community-Based Programs” on November 16th and 17th.
He summarized much of his research on race, neighborhood and mortgage lending over the last few years. Professor Ross argued that systematic unexplained racial differences in high cost lending and foreclosure exist and that those differences are associated with the concentration of minority borrowers and loans from low income and minority neighborhoods at high cost/high risk lenders. However, Professor Ross also argued that lending to vulnerable, low income and minority borrowers had little to do with severity of the foreclosure crisis itself given that the majority of foreclosure differences were explained by risk factors rather than income or neighborhood, and the dollar volume of foreclosures nationally was primarily driven by middle and upper income borrowers living in suburban neighborhoods. His presentation slides can be found at
Congratulations to Profs. Segerson and Ross for their selection to a four-year membership to the American Association for the Advancement of Science(AAAS). Profs. Segerson and Ross were nominated by the faculty and selected by an ad hoc university committee.
Professor Ross‘s work on mortgage lending was featured in the Washington Post’s Storyline Blog.
Read it here.
Professor Ross’s work finds large differences in the price of credit paid by African-Americans and Hispanics compared to white borrowers that cannot be explained by traditional underwriting variables. These differences primarily arise due to differences in loan pricing across lenders, rather differential treatment of whites and minority borrowers at the same lender. Further, these differences are concentrated among borrowers from locations that have high poverty rates and relatively lower education borrowers
An article on the American Melting Pot in Slate Magazine on October 31st discusses one of Professor Ross‘s recent working papers. In this paper, Professors Ananat, Fu and Ross find that African-Americans benefit less in terms of earnings for working in locations with lots of economic activity. Exposure to economic activity allows workers and firms to learn from each other and raises productivity and thus wages. However, these spillovers appear to accrue along racial lines so that African-Americans do not benefit from a vibrant work location when most of the individuals working in that location are white.
Prof. Steve Ross‘s essay with Jason Fletcher on “Minority mortgage market experiences leading up to and during the financial crisis” was published on Friday (Aug 22) in Vox: Research-based policy analysis and commentary from leading economists. In this essay, Professor Ross describes his research on the incidence of high cost loans, delinquency and foreclosure among minority borrowers. He finds large racial differences in all dimensions, but much of the racial differences in the incidence of high cost loans is explained by the identity of the lender and concentrated among lower education, potentially less financially sophisticated borrowers. On the other hand, racial differences in delinquency and foreclosure are concentrated primarily among borrowers who are faced with higher unemployment risk, rather than traditional factors related to subprime lending.
Professor Stephen L. Ross‘s essay with Jason Fletcher on “Understanding the Mechanisms underlying Peer Group Effects: The Role of Friendships in Determining Adolescent Outcomes” was published on Sunday (Nov 3) in Vox: Research-based policy analysis and commentary from leading economists. In this essay, Professor Ross describes the potential importance of social interactions between children as an underlying mechanism behind peer effects, and discusses Professor Fletcher and his work that shows how smoking and drinking of friends can affect substance abuse and how having friends with more educated parents can contribute to positive attitudes leading to higher grades among girls.