The Effect of Racial, Economic, and Institutional Characteristics on Home Mortgage Lending to Underserved Markets

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Despite high levels of inequality in home ownership across races, ethnic groups, and neighborhoods in the United States, recent trends among minorities and low-income groups reveal record high levels of home ownership. In aiming to understand this development, this project examines how the race and income of both individuals and neighborhoods affect home mortgage lending to underserved neighborhoods over the last decade. It also gives special attention to the institutional factors responsible for changes in lending and the ability of minority and low-income groups to purchase homes. On one hand, banking deregulation may have increased competition in ways that serve all income groups, and new performance guidelines under the Community Reinvestment Act may have prompted lenders covered by the law to do more for underserved markets. On the other hand, institutional factors may have had less positive effects: the rapid changes in the home mortgage lending industry may have resulted in the use of less favorable loan terms, inadequate consumer protection, and financing of poor quality housing. To address these issues, this project analyzes the consequences of institutional changes in home mortgage lending using nation-wide data from 1992-2001 from the Home Mortgage Disclosure Act. It measures characteristics of the mortgage applicants and lenders, the requested loan amount and the outcome of the request, and the census characteristics of the neighborhood of the housing. The analysis then describes changes over time in the loans made to minority and low-income groups, and in the determinants of the decision to deny a loan application. By extending the previous work of the investigator on Indiana to the nation as a whole, and using an under-studied data source, the project contributes to our understanding of how housing inequality emerges and has changed in recent years.