Research by Recent Graduates, Faculty Members Sheds New Light on Foreclosures

Recent research by Augustana class of 2012 graduates and faculty members sheds new light on home mortgage foreclosures in Sioux Falls.

"Who is Foreclosing on Whom," a research paper examining home mortgage lending and foreclosures in Sioux Falls from 2004 to 2010 by Kaleb Sturm, class of 2012, Dr. Reynold Nesiba, associate professor of economics, and Dr. David Sorenson, associate professor of economics, has been published in the June 2012 issue of the Journal of Economic Issues.

The paper uses a newly created and never before used database of foreclosures in Sioux Falls and introduces a new method of analysis to combine and analyze Home Mortgage Disclosure Act (HMDA), Census Bureau and foreclosure data.

The group's research demonstrates that foreclosures have disproportionately affected low income and minority census tracts in the city's inner core and northern neighborhoods. The paper also identifies which lenders in Sioux Falls have the highest numbers of foreclosures.

The research is part of an on-going analysis.

"Future research will more closely examine the role of both lender characteristics (local vs. out of state, bank vs. mortgage company, subprime vs. prime), loan specific characteristics (interest rate, fixed vs. variable rate, prepayment penalty or not), and neighborhood characteristics of the borrower (low, middle or high income, percentage minority) to examine the roles these variables play in influencing both residential lending patterns as well as the resulting patterns of foreclosures," the authors state in the paper's conclusion.

In addition, Sorenson recently presented “An Analysis of Home Mortgage Foreclosures In Sioux Falls, South Dakota,” a research paper by Sorenson, Andrew Doshier '12, Nesiba and Sturm, at the 43rd annual Mid-Continent Regional Science Association (MCRSA) meetings held June 7-8 in Bloomington, Minn. The paper, which combined information from the Home Mortgage Disclosure Act (HMDA) data and original mortgage loan documents to investigate foreclosures in Sioux Falls of loans made in 2007, is scheduled to appear in the Association’s Proceedings Issue later this summer.

"This research proved fruitful in illustrating the relationship between foreclosure stats and loan, borrower, and neighborhood characteristics. Perhaps the most important finding is the importance of loan terms, especially high interest rates, rather than any simple association with subprime lenders. Although relatively few minority borrowers are included in the dataset, reflective of the smaller minority presence in Sioux Falls when compared to larger metropolitan areas, the logit modeling clearly illustrates an increased foreclosure probability for minority borrowers," the paper concluded.

Both research initiatives were supported by an Augustana College Research and Artist Fund (ARAF) grant in the summer 2010 and the Ralph and Susie Wagoner Student-Faculty Research Project Endowment Fund during the summer and fall of 2011.