An Analysis of Foreclosure Rate Differentials in Soft Markets by Francisca Richter

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. A quantile regression model is used to identify the main neighborhood characteristics associated with high foreclosure rates in weak market neighborhoods, specifi cally for two counties in Ohio and one in Pennsylvania. A decomposition technique by Machado and Mata (2005) allows separating foreclosure fi ling rate differentials across counties into two components: the fi rst due to differences in the levels of neighborhood characteristics and the second due to differences in the model parameters. At higher than median rates, foreclosure rate differentials between counties in Ohio are mainly explained by the levels of these characteristics. However, foreclosure rate differences between counties across states are mainly explained by the parameter component, suggesting that state level effects might have contributed to shape foreclosure rate outcomes.