Analysing Determinants of Foreclosure among High-income African-American and Hispanic Borrowers in the Washington, DC Metropolitan Area

Abstract

Foreclosures have disproportionately affected minority borrowers and communities. Many academic studies have focused either on the nation as a whole or on specific metropolitan areas, but few have concentrated on the nation's capital. Using a merged dataset consisting of Home Mortgage Disclosure Act (HMDA), US Census, and Lender Processing Services (LPS) data and utilizing a logistic regression model, we analyse the likelihood of foreclosure in the Washington, DC metropolitan area. We find that high-income African-American borrowers are 36 per cent and Hispanic borrowers 79 per cent more likely to go into foreclosure, controlling for key financial variables. Moreover, we find that exotic mortgage products, such as adjustable rate mortgages (ARMs), high-cost mortgages, balloon mortgages and interest-only mortgages, have a higher likelihood of foreclosure than standard 30-year fixed rate mortgages.