Spatial Patterns of Subprime Mortgages by Local Banks, Nonlocal Banks, and Independents in the Continental US

Abstract

Mortgage innovations and New Deal agencies facilitated lower priced loans for prime borrowers and minimum price disparities across US regions. In the 1980s deregulation removed price restrictions on banks' mortgages and also removed geographic distance restrictions on lending, opening the subprime industry. Global and local Moran indices identified interregional price disparities based upon proportions of subprime mortgage originations. A cluster of high-priced mortgage originations was found along the Gulf States both before and after the subprime collapse of 2007. Local banks, perceived to have special underwriting knowledge about their markets, and who were more likely to offer preferred prices, were compared with nonlocal banks and independent mortgage companies on their spatial distributions of mortgage pricing. During the boom and bust years from 2005 to 2008, the regional patterns of proportions of subprime mortgages for each mortgage institution type were similar, adversely impacting borrowers in the Southern Gulf region. These spatial patterns suggest that nonlocal banks and independents made the same underwriting conclusions about borrowers in regional markets as the local bank specialists.