Lending patterns in poor neighborhoods

• We model subprime lending rates across neighborhoods in order to capture social effects differences in poor and less poor neighborhoods.
• We use a Dual Regime Spatial Durbin model on 2004–2006 data for Cuyahoga County, OH, a region with 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.

Concentrated poverty has been said to impose a double burden on those that confront it. In addition to an individual's own financial 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, OH, 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.