Household Finance and Mortgage Performance after a Public Health Crisis: The Case of Flint

In April 2014, the city of Flint, MI began suffering a major public health crisis as a switch in the city's water source led to elevated levels of lead and other pollutants across the city. While there is emerging evidence of the adverse health effects that resulted from this increase in lead exposure (Grossman and Slusky, 2017), recent studies examining the effect of natural disasters on household finance (Gallagher and Hartley, 2017; Deryugina, Kawano, and Levitt, 2017) suggest that there may be additional financial spillover effects due to the increased lead exposure. Importantly, the size and the direction of these financial effects are theoretically ambiguous, which makes the question of assessing the effect of the crisis an empirical one.

To test if individuals living in exposed areas had worse financial outcomes, I combine detailed geographic data on lead testing results from the city Flint combined with anonymized consumer credit information from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) from 2010-2016. Leveraging the fact that the city of Flint changed its water source while the rest of Genesee County, MI did not, I employ a standard difference-in-differences approach and compare financial and mortgage outcomes of individuals living in census tracts within the city of Flint to individuals living in bordering census tracts outside of the city.

Preliminary results using the CCP show that: (1) individuals living in census tracts within the city Flint did not have significantly different borrowing or delinquency outcomes than individuals living in census tracts outside of the city and (2) areas in Flint that were differentially affected by the water crisis, as measured by the average lead testing results at the census tract level, did not have significantly different household borrowing or delinquency outcomes. Using public data from the Home Mortgage Disclosure Act (HMDA), I find that individuals living in census tracts within Flint experienced higher rates of denied mortgage applications and had fewer mortgages originated. These results also suggest that along with the serious, adverse health outcomes that resulted from increased lead exposure in the city of Flint, there were also important financial spillover effects. Therefore, any analysis of the total effects that resulted from the water crisis would be understated if the financial effects are not also included.