Thy Neighbor's Mortgage: Does Living in a Subprime Neighborhood Affect One's Probability of Default?

Sumit Agarwal, Brent W. Ambrose, Souphala Chomsisengphet, Anthony B. Sanders

Research output: Contribution to journalArticle

33 Scopus citations


This article focuses on the potential externalities associated with subprime mortgage origination activity. Specifically, we examine whether negative spillover effects from subprime mortgage originations result in higher default rates in the surrounding area. Our empirical analysis controls for loan characteristics, house price changes and alternative loan products. Our results indicate that, after controlling for these characteristics, the concentration of subprime lending in a neighborhood does not lead to greater default risks for surrounding borrowers. However, we do find that more aggressive mortgage products (such as hybrid adjustable rate mortgages and low/no-documentation loans) had significant negative spillovers on other borrowers. Stated differently, the aggressive alternative mortgage designs were more toxic to the housing and mortgage market than previously believed.

Original languageEnglish (US)
Pages (from-to)1-22
Number of pages22
JournalReal Estate Economics
Issue number1
StatePublished - Mar 1 2012


All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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