Foreclosure Spillovers within broad Neighborhoods
Most evidence on foreclosure spillovers identifies localized effects that are modest in magnitude, but these effects could multiply to larger aggregate effects across broad neighborhoods. We test this proposition developing a proxy for the fraction of mortgages in negative equity during the foreclosure crisis and estimating a difference-in-differences model for foreclosure. This proxy exploits the timing of foreclosures in each tract, and this within tract variation is not predicted by mortgage attributes, housing attributes or sales prices. Our estimates suggest that 61 percent of the increase in across tract dispersion in foreclosure filings can be explained by these spillover effects.
The authors are grateful for helpful comments from Kris Gerardi, Stijn Van Nieuwerburgh and Peter Zorn, as well as participants at the 2019 Urban Economics Association Meetings. All errors are our own. The authors have no disclosures to make concerning this research, and this research was not supported by extramural funding. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.