Metropolitan Segregation and the Subprime Lending Crisis.

Unsustainable high-cost lending was a major contributor to one of the worst financial crises in U.S. history. While several studies examine individual- and community-level predictors of high-cost lending, little research has tested for the possible causal effect of racial segregation. Using two-stage least squares statistical models, we find evidence that even after controlling for percentage minority, poverty, unemployment, low credit scores, home value escalation, and bank branch accessibility, black/white segregation is a significant predictor of the proportion of subprime loans originated in the largest 200 U.S. metropolitan areas. We also find that increased black education levels are important protective factors, while greater shares of mortgages originated by independent mortgage companies increase the risk for subprime lending. We find no evidence for an effect of Hispanic/white segregation on subprime lending. This research suggests that policy initiatives aimed at limiting high-cost lending should address the context of black/white segregation, education, and financial reform. [ABSTRACT FROM PUBLISHER]