Lending Patterns in Poor Neighborhoods

Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded offi cial Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Concentrated poverty has been said to impose a double burden on those that confront it. In addition to an individual's own fi nancial constraints, institutions and social networks of poor neighborhoods can further limit access to quality services and resources for those that live there. This study contributes to the characterization of subprime lending in poor neighborhoods by including a spatial dimension to the analysis, in an attempt to capture social—endogenous and exogenous interaction—effects differences in poor and less poor neighborhoods. The analysis is applied to 2004-2006 census tract level data in Cuyahoga County, home to Cleveland, Ohio, a region that features urban neighborhoods highly segregated by income and race. The patterns found in poor neighborhoods suggest stronger social effects inducing subprime lending in comparison to less poor neighborhoods.