Racial, Economic, and Institutional Differences
in Home Mortgage Loans:
St. Joseph County, Indiana

Journal of Urban Affairs, 1997
Richard Williams & Reynold Nesiba

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Over the last decade, numerous authors have evaluated the existence and degree of racial and economic disparities occurring in the urban home mortgage market. From the early work done by Shlay (1987, a, b, c) and Dedman (1988) through the frequently cited study published by the Boston Fed (Munnell, Browne, McEneaney and Tootell, 1992) the results are virtually unanimous. Studies across the country show that blacks proportionally apply for fewer loans than whites, yet are rejected more often. Researchers consistently find that white neighborhoods receive many (three to four) times more loans per 1,000 mortgageable structures than do minority neighborhoods. Regression analyses, using various model specifications and data sets, agree that redlining and racial variables show consistent, significant and negative associations with home mortgage lending. This is true even after applying controls for obligation ratios, credit history, loan to value ratios, and property characteristics.

In this study, we make three important contributions to the literature on residential mortgage patterns:

First, almost all studies have focused on aggregate bank performance, i.e., how well do all the lending institutions in an area do at serving the community. Very little attention has been paid to institutional disparities (i.e. the ways in which banks differ among themselves in their community reinvestment performance). Or, as Kim and Squires (1995) put it, most studies of mortgage lending have focused on the demand side (characteristics of borrowers, the properties they intend to purchase, and the surrounding neighborhoods) while paying little attention to the supply side (the characteristics of lending institutions). In this study, we examine measures and create indices that allow us to look at the community reinvestment performance of several institutions individually. This allows us to examine whether and why some lending institutions do better than others at serving low income and minority areas and individuals. Wide variations between lenders may suggest that bank practices and policies exert a great impact on how well different groups and areas are served. We then go a step further to see what lender characteristics, if any, seem to be held in common by the more successful and less successful sorts of lenders. In particular, we examine whether the type of institution (e.g. commercial bank, credit union, savings and loan), local or non-local ownership, the size of a bank, and locations of bank branches are related to bank performance.

Second, many analyses have focused on racial disparities in denial rates. While denial rates are important, they tell only part of the story. High denial rates may indicate that a lender targets areas and individuals ignored by others, while low denial rates are worth little if few lower income minorities ever apply. In this analysis, we examine how lenders differ in the amount of business they do with low income and minority neighborhoods and individuals. One cannot make a loan to someone who does not apply, and as we show, some institutions deal much more with low income and minority applicants than do others.

Third, almost all previous work has been done on large urban areas, many of which have long histories of racial conflict and discrimination. The situation in other types of areas is unknown. To the extent possible, we replicate previous studies to see whether similar results can be found in a moderate-sized urban area. Specifically, we examine St. Joseph County, Indiana, which contains the cities of South Bend and Mishawaka.


Residential Segregation and the Transformation of Home Mortgage Lending (Social Forces, December 2007)

Alternative Assessments of GSE Performance, Influence and Impact (Final Report for HUD, May 2006)

The Changing Face of Inequality in Home Mortgage Lending (Social Problems, May 2005)

Are the GSEs Leading, and If So Do They Have Any Followers? An Analysis of the GSEs - Impact on Home Purchase Lending to Underserved Markets During the 1990s (Final Report for HUD, December 2002)

The Effect of GSEs, CRA, and Institutional Characteristics on Home Mortgage Lending to Underserved Markets  (Final Report for HUD, December 1999; slightly revised version published in Cityscape, 2001)

Racial, Economic and Institutional Differences in Home Mortgage Loans: St. Joseph County, Indiana (Journal of Urban Affairs, 1997)